In recent months, the Securities and Exchange Commission (SEC) under Gary Gensler has come under fire for its regulation-by-enforcement policy, and many are seeking clarity in the cryptocurrency lines.
Today, the crypto industry took a few steps toward clarity when a Texas federal judge ruled threw out the agency’s broker-dealer rule. Under the SEC’s proposed definition, the term “dealer” includes all liquidity providers and market makers holding more than $50 million in capital.
According to Texas Judge Reed O’Connor, the agency exceeded its authority by adopting a broad definition of a “dealer” that is unrelated to the text, structure and spirit of the Exchange Act.
The crypto community has hailed this legal victory, with Marisa Tashman Coppel of the Blockchain Association calling it a huge win for the growing industry.
BECOME A DEALER RULE! SEC exceeded its statutory authority. HUGE gain for the entire sector @BlockchainAssn And @CryptoFreedomTX !!! pic.twitter.com/Zv1Mhv1uwl
— Marisa Tashman Coppel (@MTCoppel) November 21, 2024
SEC provides a comprehensive definition of broker and dealer
On February 6, 2024, the SEC adopted new rules for market participants and updated the definition of broker/dealer. Under the agency’s revised rules, market participants with more than $50 million in capital must register as dealers or securities dealers.
At the time the rules are published, more than 40 market participants must register and be subject to the broker’s definition and regulations.
As of today, the market cap of cryptocurrencies reached $3.24 trillion. Chart: TradingView
According to critics and observers, the SEC has overstepped its authority and made unrealistic demands. For example, critics have attacked the agency for enforcing the Know Your Customer (KYC) protocol even on decentralized platforms without central operators.
Abuse of authority, says judge
O’Connor ruled that the agency had abused his authority. The district court further explained that the SEC’s proposed dealer rules are “unconnected” to the nation’s securities laws.
Critics served them complaints in court after the SEC formally updated the definitions last February 2024. The Crypto Freedom Alliance and the Blockchain Association are two organizations that filed the complaint against the agency.
Uncertain times for SEC
The SEC is heading into uncertain times, especially now that Chairman Gary Gensler has already announced his intention to resign. In a Twitter/X message on November 22, Gensler announced that he will resign on January 20, 2025. With Gensler’s resignation and legal challenges, the SEC’s approach to crypto remains uncertain.
On January 20, 2025 I will say goodbye as @SECGov Chair.
A thread 🧵⬇️
— Gary Gensler (@GaryGensler) November 21, 2024
O’Connor’s ruling is the latest challenge and setback for the SEC. Although the agency can still appeal this ruling to the 5th Circuit Court of Appeals, the decision is a major blow. Crypto support has scored a victory on the clarification of the dealer definition, and with incoming US President Donald Trump at the helm, the industry can expect friendlier policies soon.
Featured image of DALL-E, chart from TradingView