The head of the United States Securities and Exchange Commission (SEC), Gary Gensler, has long been critical of the crypto and blockchain industry. However, not all U.S. lawmakers share his views and have pushed back on the SEC’s regulation of crypto assets. This conflicting sentiment within the U.S. government has created an uncertain and unstable environment for crypto projects looking to operate in the country.
One of the main issues is the SEC’s use of the Howey test to determine what constitutes a security. Many in the crypto industry believe that this test is outdated and fails to capture the unique nature of digital assets. But the way laws are created in the U.S. is different from other countries, and the SEC has certain limitations.
The Supreme Court of the United States (SCOTUS) has two pending cases, Loper vs. Raimondo and Relentless, Inc. vs. the U.S. Dept of Commerce, that could significantly impact the SEC’s authority over cryptocurrency. These cases aim to clarify the extent to which federal agencies can use their own discretion and interpretation of the law, rather than strictly adhering to what Congress has explicitly stated.
The Chevron deference, established by the 1984 court case Chevron vs. Natural Resources Defense Council, allows federal agencies to enforce laws as long as their actions are not unreasonable and Congress has not directly addressed that specific part of the law. This deference has a significant impact on various industries, including cryptocurrencies.
However, many in the crypto industry argue that the SEC’s regulations on crypto have been irrational and unreasonable. Coinbase CEO Brian Armstrong has repeatedly highlighted how unclear regulations drive the industry offshore, and he believes that the U.S. will eventually find the right regulatory outcome for crypto.
Removing or limiting the Chevron deference would allow the U.S. public to have more influence over their elected officials in creating clear laws for the digital asset sector. Until Congress precisely defines the classification of digital assets and the circumstances under which they are considered securities or commodities, the SEC can continue to make sudden declarations regarding their status.
The July 2023 ruling that Ripple’s XRP token is not a security when sold on retail digital asset exchanges was a significant milestone for the industry. It provided some precedent and clarity for future cases. The Loper vs. Relentless, Inc. case currently before the Supreme Court challenges the use of the Chevron deference by federal agencies.
While the immediate impact of limiting the Chevron deference may not be significant for the blockchain and crypto industry, it sets a precedent for closer adherence to Congress’s direction on how to handle crypto going forward.
The outcome of these cases could have a lasting impact on the industry. If the Supreme Court ruling on the Loper case explicitly addresses the crypto space, it could provide crucial ammunition for crypto exchanges and companies fighting against the SEC’s regulatory overreach.
As the crypto industry continues to mature, it will intersect with other sectors and their regulations. Crypto firms lobbying for a better regulatory environment can find angles in cases like these to support their cause. It’s important for the industry to stay vigilant and be aware of how the law is being interpreted, as every case that reaches entities like the Supreme Court can make a significant impression on the blockchain space.