Securities and Exchange Commission (SEC) Chairman Gary Gensler’s ongoing regulatory campaign against the cryptocurrency industry he calls “the Wild West of finance” may have just run into trouble at the Supreme Court.
While the 6-3 ruling was on a case involving the Environmental Protection Agency’s (EPA) ability to regulate air pollution, the court remanded a regulation that would cap carbon dioxide emissions at a level that would drastically reduce the amount of coal-powered electricity to a federal appeals court.
But the court’s majority opinion in West Virginia v. EPA was broad enough that it could drastically curtail the way agencies like the SEC exert their regulatory authority outside of congressional control.
This may well have an impact on the cryptocurrency industry, which is being regulated by agencies that are trying to force it into an existing set of regulations that it does not fit, crypto industry advocates have been arguing for years.
“Today’s #SCOTUS decision challenges the regulation by enforcement approach that the digital asset industry has been forced to navigate,” Perianne Boring, CEO of the Chamber of Digital Commerce, a crypto industry association, said on Twitter. “Without clear Congressional authorization, federal agencies must tread carefully.”
Today’s #SCOTUS decision challenges the regulation by enforcement approach that the digital asset industry has been forced to navigate. Without clear Congressional authorization, federal agencies must tread carefully. https://t.co/6iFcaTPAHt
— Perianne (@PerianneDC) June 30, 2022
In a statement to CNBC, she added that the ruling “at the very least should give regulators pause in attempting to set policies that exceed their congressionally mandated roles, particularly so with emerging innovations with great economic potential.”
Specifically, the industry objects to the SEC’s ruling that virtually all cryptocurrencies are securities subject to its jurisdiction. That has led to enforcement actions that effectively shut down the initial coin offering (ICOs) that funded the growth of the industry during the first major crypto boom in 2017-2018.
It’s an argument that Gensler has been losing recently, after a bipartisan Senate bill recommended giving control of most cryptocurrencies to the Commodity Futures Trading Commission (CFTC).
Hostility on Both Sides
More recently, the SEC has used the authority it claims to clamp down on the crypto lending industry — forcing Coinbase to pull back on plans to enter it and getting BlockFi to agree to a $100 million settlement — with its ongoing refusal to allow a spot bitcoin exchange-traded fund (ETF).
One of the things that outraged Coinbase CEO Brian Armstrong was that the agency would not even explain why it threatened to sue the top crypto exchange if it launched Coinbase Lend, which would have offered customers up to 4% annual yield for deposits.
In a July 1 Twitter thread about the SEC’s enforcement rulings this year, attorney Jake Chervinsky, head of policy at the Blockchain Association, wrote: “Across the gov’t, almost everyone is lined up behind the smart national strategy that [President Joe Biden set out in an executive order about crypto regulation] to proceed thoughtfully & act deliberately. And almost everyone gets that only Congress can answer major questions like how to regulate crypto.”
Everyone “except the SEC,” he added.
1/ On what to expect from the SEC:
Despite all the fears & predictions of a “regulatory crackdown” on crypto in the US, & despite historically bad market conditions (to put it lightly), we saw no major gov’t actions in H1 2022. I feel good about this.
H2 2022 may be different.
— Jake Chervinsky (@jchervinsky) July 1, 2022
“We all saw the SEC’s overt hostility to crypto in H1 … Sadly, I expect it will get worse in H2,” Chervinsky wrote. “The SEC seems to be waging war on crypto on two fronts: rulemaking & enforcement.”
In a statement to CNBC after the EPA ruling, Chervinsky said that the “decision signals that the Supreme Court won’t take kindly to regulatory agencies like the SEC attempting to redraw their own jurisdictional boundaries beyond what Congress clearly intended.”
He added that he thought it likely that the Supreme Court would strike down rules the SEC has proposed and enforced on the crypto industry.
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