SEC Withdraws Appeal on Broker-Dealer Rule Amid Shifts in Crypto Regulation

• The SEC dropped its appeal against a court ruling that invalidated its broker-dealer rule targeting DeFi platforms and crypto firms.
• The court ruled the SEC exceeded its authority, citing potential harm to DeFi platforms through traditional compliance frameworks.
• SEC leadership changes and Trump’s digital asset executive order indicate a shift toward balanced crypto regulation in the U.S.

The U.S. Securities and Exchange Commission (SEC) withdrew its appeal against a federal court ruling that invalidated its broker-dealer rule. This development marks a significant change in the SEC’s regulatory approach toward the cryptocurrency sector.

Federal Court Ruling Challenges SEC’s Authority

The SEC announced a new regulation during February 2024 that affects DeFi platforms and crypto entities with amounts over $50 million. Under this regulation various entities received treatment as brokers and dealers which demanded they follow a rigorous registration process. The Blockchain Association together with the Crypto Freedom Alliance of Texas filed opposition to the rule based on their argument that the SEC was exceeding its proper regulatory boundaries.

By November 2024, U.S. District Judge Reed O’Connor ruled that the SEC’s actions surpassed its statutory limits. He stated that the rule was “untethered” from existing U.S. securities laws. The ruling emphasized potential harm to the DeFi sector by imposing compliance frameworks suited to traditional financial institutions rather than decentralized networks.

Industry Reactions to the SEC’s Decision

The SEC’s decision to drop the appeal was met with approval from the cryptocurrency industry. Industry leaders voiced concerns that the broker-dealer rule would place unrealistic compliance burdens on platforms lacking centralized operators. Hester Peirce, an SEC commissioner, referred to the regulation as an “unlawful power grab,” reflecting broader concerns regarding the agency’s jurisdictional reach.

The decision appears following leadership transitions at the SEC. Chairman Gary Gensler initiated intense regulatory actions against the crypto industry during his time at the SEC. Mark Uyeda’s role as SEC Chairman represents a move towards establishing a regulatory approach that exhibits moderation. Digital asset regulation in the United States moves toward achieving a balance in regulatory procedures.

The appeal withdrawal occurs simultaneously with new regulations that emerge in the United States for digital assets. The creation of a detailed framework to enforce digital asset regulations received direction from President Donald Trump through an executive order in January 2020.
The Bitwise exchange-traded fund (ETF), which seeks to invest in cryptocurrency spot markets, received approval from the SEC regarding its filing process, hence demonstrating a changing perspective about cryptocurrency market integration within traditional financial sectors.