A federal judge in Texas has dealt another blow to the Securities and Exchange Commission's (SEC) efforts to regulate cryptocurrency markets by striking down a controversial broker-dealer rule.
Judge Reed O'Connor of the U.S. District Court for the Northern District of Texas ruled that the SEC overstepped its authority with its February 2024 rule that sought to classify decentralized finance platforms and crypto entities as traditional brokers.
The now-invalidated rule would have required DeFi platforms and automated market makers with over $50 million in capital to comply with strict regulations, including Know Your Customer and Anti-Money Laundering requirements. Industry experts argued these requirements were impractical for decentralized platforms that operate without central authority.
The legal challenge was brought by industry advocates, including the Blockchain Association and the Crypto Freedom Alliance of Texas. They successfully argued that the rule would hamper innovation in the cryptocurrency sector.
The court's decision marks another setback for the SEC's regulatory approach under Chair Gary Gensler, who recently announced his resignation effective January 2025. The timing coincides with the upcoming presidential transition, as President-elect Donald Trump has pledged to take a different approach to crypto regulation.
The ruling highlights the ongoing challenge of applying traditional financial regulations to emerging blockchain technologies. Industry observers note that this decision could influence future regulatory frameworks for the cryptocurrency sector.
While the SEC maintains the option to appeal, this ruling adds to a growing list of legal defeats for the agency in its attempts to regulate the crypto industry. The decision raises questions about the agency's regulatory strategy and its ability to effectively oversee the rapidly evolving digital asset space.