Crypto Scores “Huge Victory” Against SEC As Court Tosses Dealer Rule
- The SEC’s efforts to expand the definition of a dealer to target crypto have fallen flat in an exit blow to the agency’s outgoing chair, Gary Gensler.
- A federal judge bashed the SEC’s effort as unlawful.
- The ruling has sparked significant jubilation in crypto circles.
The crypto space has had several reasons to be excited in recent weeks and the good times keep rolling. In the most recent instance, the industry’s designated enemy number one SEC Chair Gary Gensler has disclosed plans to leave the agency but not before taking a huge loss against the industry in court.
SEC Dealer Rule Gets Tossed
The SEC’s efforts to expand the definition of a dealer to target crypto have fallen flat in an exit blow to the agency’s outgoing chair, Gary Gensler.
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Traditionally, a dealer is an entity that plays the structural role of purchasing assets for its own account to facilitate trade in markets, profiting from the spread between the ask and bid prices. Dealers are typically highly regulated as they play key roles in price discovery and liquidity, quoting prices and often engaging in market-making activities.
In February 2024, the Gary Gensler-led SEC voted to expand this definition to cover hedge funds, which it argued had become a key source of liquidity for the U.S. Treasury market. At the same time, the agency noted the rule would also cover crypto.
By the new definition, anyone controlling up to $50 million in capital and frequently engaging in trading activity would have to register with the regulator. This, however, did not sit well with several members of the crypto community, who argued that the rule blurred the lines between traders and dealers and was also impractical for automated market makers . This protest culminated in an April 2024 lawsuit against the SEC from the Texas-based crypto advocacy group, the Crypto Freedom Alliance of Texas, and the Blockchain Association.
In an order issued on Thursday, November 21, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas vacated the SEC’s expanded dealer rule in favor of the plaintiffs.
“the Court concludes that the SEC exceeded its statutory authority enacting such a broad definition dealer untethered from the text, historys structure of the Exchange Act,” the ruling read.Unsurprisingly, the ruling has sparked significant jubilation in crypto circles.
“Huge Victory for Crypto”
Responding to the ruling, several crypto legal experts have hailed it as a major win for the industry.
“HUGE VICTORY FOR CRYPTO OVER THE SEC,” Consensys Senior Counsel Bill Hughes enthused in an X post .
“Just because you trade a lot doesn't mean you are trading "as a regular business" making you a dealer. You need to do more than simply affect market liquidity - you must be a market intermediary buying and selling from/to customers as a regular service. And the SEC's Dealer Rule departs from this! It destroys the trader/dealer distinction. THE RULE IS VACATED. translation: Check your feet Gary, you dropped a big L,” he added.Interestingly, the ruling came just hours before Gensler announced that he would be leaving the SEC in January 2025.
On the Flipside
- The SEC’s expanded definition was slated to go into force in April 2025.
- Elsewhere, the Gary Gensler-led SEC has moved to implement SAB 121 , an accounting rule that many believe will discourage businesses from holding crypto as they would be forced to list any such assets as liabilities.
Why This Matters
The SEC’s expanded dealer rule had promised to complicate how liquidity is provided to crypto projects in the US.
Read this for more about the SEC’s expanded dealer definition:
Here’s Why the SEC’s Dealer Rule Expansion Has Crypto Irked
See what Gary Gensler’s exit means for crypto:
Gary Gensler Confirms SEC Exit: What It Means for Crypto
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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