The U.S. Securities and Exchange Commission (SEC) has dropped its appeal in the legal battle over its expanded dealer rule, marking a significant victory for the cryptocurrency industry. This decision follows a ruling from a Texas court that struck down the rule, declaring it “untethered” from existing laws. The lawsuit challenging the rule was filed in April 2024 by the Blockchain Association and the Crypto Freedom Alliance of Texas (CFAT).
The SEC’s dealer rule sought to broaden the definition of a dealer to include high-frequency trading firms and certain crypto hedge funds, effectively bringing these entities under more stringent regulatory control. Critics, particularly from within the crypto sector, argued that the rule was a veiled attempt to regulate crypto trading platforms without the approval of Congress. The Texas court agreed, stating that the SEC had exceeded its authority. Although the SEC initially appealed the ruling, it has now voluntarily withdrawn the appeal, ensuring that the expanded dealer rule will not be implemented.
This legal win is being celebrated by crypto industry groups, which see it as a clear pushback against regulatory overreach. Kristin Smith, CEO of the Blockchain Association, welcomed the outcome, stating, “We first brought this lawsuit to challenge the agency’s unlawful power grab. With today’s final dismissal, we look forward to constructive discussions with the SEC.”
The case is seen as a pivotal moment in the ongoing debate over crypto regulation, and it is expected to influence the SEC’s future rulemaking efforts. Marisa Coppel, Head of Legal at the Blockchain Association, emphasized that litigation is essential for protecting innovation and ensuring that regulations are fair and legally sound.
This decision also signals a shift in the SEC’s enforcement strategy under acting Chair Mark Uyeda, following a period of strict regulation under former Chair Gary Gensler. The agency’s recent actions, including the reassignment of key trial lawyers and delays in high-profile cases against companies like Coinbase and Binance, suggest that the SEC may be moving toward a more conciliatory approach to crypto regulation.
Industry leaders are now calling for clearer, more comprehensive regulations that provide both legal certainty and space for innovation. With Congress working on new digital asset regulations, there is optimism that a more balanced regulatory framework could soon emerge. While the SEC has stepped back from this particular case, its lawsuit against Ripple continues, with a critical court deadline approaching in mid-April.
The crypto sector remains hopeful that these legal developments will foster an environment conducive to growth and innovation while ensuring proper consumer protections.
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