• Eighteen states filed a lawsuit against the SEC for overreaching crypto regulation.
  • The lawsuit argues the SEC’s actions infringe on states’ economic policies and federalism.

Eighteen Republican-led states have filed a lawsuit against the Securities and Exchange Commission (SEC), accusing the agency of overstepping its authority in regulating the $3 trillion crypto industry. They argue that, as a result of the SEC’s enforcement tactics, their rights to manage economic policies are being infringed. Furthermore, the states claim these actions violate fundamental principles of federalism.

The lawsuit claims the SEC’s aggressive enforcement under Biden’s administration harms the crypto sector and disrupts state economies. By targeting U.S.-based crypto firms without specific rules for digital assets. The lawsuit suggests that the SEC undermines the balance of power intended by Congress. This legal action was filed with support from the DeFi Education Fund, an organization advocating for effective policy in decentralized finance (DeFi).

SEC’s Strategy Draws Criticism

Under the Biden administration, the SEC has adopted a ruling by enforcement approach to crypto. Instead of creating specific rules, the agency has chosen to apply existing securities laws to crypto firms on a case-by-case basis. Moreover, SEC Chair Gary Gensler has been vocal about his stance, urging crypto platforms to register with the SEC. He likens these platforms to traditional exchanges to help prevent fraud and market manipulation risks.

In defense of his approach, Gensler cited ongoing support from the courts during a recent address at the Practicing Law Institute’s conference. He arguedthat courts have consistently validated the SEC’s efforts to enforce securities laws.

Meanwhile, President-elect Donald Trump has pledged to remove Gensler from his role on day one of his administration, marking a potential shift in the SEC’s approach to crypto. Republican attorneys general allege that Congress intentionally limited federal authority over digital assets, leaving regulatory decisions to the states. However, they claim the SEC has disregarded this intent, unlawfully extending its reach over the industry.