In the past few months, Gary Gensler and the Securities and Exchange Commission (SEC) have faced a fair amount of criticism regarding their “regulation-by-enforcement” strategy. Many in the crypto sector have been advocating for more straightforward guidelines.
Today, the cryptocurrency landscape got some clarity after a federal judge in Texas dismissed the agency’s broker-dealer rule. The SEC had been suggesting that anyone providing liquidity and holding over $50 million should register as a "dealer."
Judge Reed O’Connor in Texas ruled that the SEC had gone beyond its powers by creating a definition of a “dealer” that wasn’t consistent with the Exchange Act’s intent or language.
This legal victory has been applauded by the crypto community. Marisa Tashman Coppel from the Blockchain Association heralded it as a huge win, noting its significance for the industry’s growth.
DEALER RULE STRUCK DOWN! SEC exceeded its statutory authority. HUGE win for the entire industry @BlockchainAssn and @CryptoFreedomTX !!! [Tweet by Marisa Tashman Coppel, November 21, 2024]
SEC Extends the Broker-Dealer Definition
Back on February 6th, 2024, the SEC introduced new regulations for market participants and adjusted the definition of a broker/dealer. According to these updated rules, entities with over $50 million in capital needed to sign up as dealers or securities dealers. This requirement put over 40 market players under the scope of these definitions and regulations.
As of today, cryptocurrencies boast a market cap reaching $3.24 trillion, a notable markup showcased in the TradingView chart.
Observers and detractors criticized SEC’s extensive measures, arguing they were imposing unreasonable demands—like the Know Your Customer (KYC) protocols—on decentralized platforms without central administration.
A Judge’s Take on Overreach
Judge O’Connor concluded that the SEC was overextending its authority. He criticized the proposed dealer rules as being “untethered” from the nation’s securities laws.
After the SEC updated its definitions in February 2024, complaints began to pile up in court. Leading the charge against the agency were the Crypto Freedom Alliance and the Blockchain Association.
Turbulent Times Ahead for the SEC
The SEC now faces a rocky path, particularly since Chairman Gary Gensler has indicated plans to resign. In a tweet dated November 22nd, Gensler announced he’ll be stepping down on January 20th, 2025. With his impending resignation and these legal challenges, the SEC’s direction on crypto issues remains shaky.
On January 20, 2025 I will be stepping down as @SECGov Chair. [Chronology – Gary Gensler, Tweet, November 21, 2024]
Judge O’Connor’s decision marks a significant stumbling block for the SEC. They can appeal the ruling in the 5th Circuit Court of Appeals, but this represents a substantial defeat. This development offers the crypto sector a stronger voice concerning how dealers are defined. With Donald Trump poised as the next U.S. President, the industry anticipates more favorable policies soon.
Featured image courtesy of DALL-E, market chart by TradingView.
