US Blockchain Associations Challenge SEC’s Regulatory Approach

The Blockchain Association (BA) and the Texas Crypto Freedom Alliance (CFAT) have filed a complaint against the SEC, accusing it of “capricious rulemaking” and “erroneous attacks” on the digital asset industry.

The organizations seek to overturn the “Dealer Rule” due to various violations of the Administrative Procedure Act (APA) by the agency, which “prevent industry participants from operating under clearly defined rules.”

BA and CFAT argue that the regulator violated APA norms by unlawfully expanding the interpretation of the term “dealer”:

“The unlawful radical expansion of the definition has nothing to do with the long-established meaning of the term and suggests an approach capable of causing irreparable harm to tens of millions of Americans and businesses involved in digital asset trading.”

In February, the Commission approved rules for overseeing “dealers,” extending its jurisdiction to include more financial operations, including those involving cryptocurrencies. Under the new provisions, market participants managing and owning assets exceeding $50 million are required to register with the agency.

The lawsuit states that the SEC refused to “substantively” respond to industry representatives’ questions about the application of the expanded definition in the crypto industry.

According to the plaintiffs, the term now applies a vague and much broader standard, attracting participants who “in no way resemble a dealer” in the traditional sense.

“The ‘Dealer Rule’ advances the SEC’s campaign against digital assets and unlawfully redefines the boundaries of its statutory authority granted by Congress. Such a provision could potentially push American companies offshore and instill fear among American innovators,” emphasized BA head Kristin Smith.

Previously, analysts at investment bank Berenberg suggested that the next “victims” of the Commission could be stablecoins and the decentralized finance sector.

In September 2023, the head of the regulator’s enforcement division, David Hirsch, stated that the agency is examining certain centralized exchanges and DeFi protocols for legal violations.

In April 2024, the largest DEX Uniswap received a warning from the SEC about a potential lawsuit.