US court strikes down SEC dealer rule in crypto industry victory

A U.S. federal court has invalidated the Securities and Exchange Commission’s (SEC) broker-dealer rule, marking a significant win for the cryptocurrency industry.  

The rule, introduced in February 2024, expanded the definition of a "dealer" to include liquidity providers and automated market makers with over $50 million in capital, potentially imposing stringent regulatory requirements on decentralised networks.  

U.S. District Judge Reed O’Connor ruled that the SEC overstepped its authority with the rule.  

“The Court concludes that the SEC exceeded its statutory authority by enacting such a broad definition of dealer untethered from the text, history, and structure of the Exchange Act,” he stated.  

The Blockchain Association, a crypto advocacy group, hailed the decision as a “huge win” for the industry.  

However, the SEC retains the option to appeal the verdict to the 5th Circuit Court of Appeals, which could revive the contested rule.  

The broker-dealer rule had faced widespread criticism from crypto executives, lawmakers, and even SEC commissioners.  

Commissioner Mark Uyeda warned that the rule gave the SEC an almost limitless scope of jurisdiction.  

Commissioner Hester Peirce, known for her pro-crypto stance, criticised the agency’s attempt to regulate decentralised protocols, asserting that it was beyond the SEC’s remit.  

The crypto industry took legal action against the rule in April, with groups like the Blockchain Association and the Crypto Freedom Alliance of Texas filing a lawsuit.  

They argued that the rule stifled innovation and placed unrealistic compliance burdens on decentralised projects.  

This court ruling follows other recent victories for the crypto sector, including the CFPB excluding crypto wallets from oversight and the announcement of SEC Chair Gary Gensler’s planned resignation.  

These developments signal a shifting regulatory landscape for the U.S. crypto industry.