SEC Drops Appeal Against Crypto Broker-Dealer Rule, Ending Legal Battle

The U.S. Securities and Exchange Commission (SEC) has abandoned its appeal to overturn a court ruling that blocked its attempt to redefine broker-dealers in the cryptocurrency sector. In a filing on February 19, the SEC voluntarily dismissed its appeal to the Fifth Circuit Court of Appeals, concluding the high-profile case.

The lawsuit, initiated by the Blockchain Association and the Crypto Freedom Alliance of Texas, challenged the SEC’s proposed rule requiring crypto liquidity providers and automated market makers with over $50 million in capital to register as dealers. Critics argued the regulation would burden decentralized finance (DeFi) protocols, which lack centralized governance and struggle to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements. Texas District Court Judge Reed O’Connor ruled that the SEC had overstepped its authority.

With the SEC’s withdrawal, Blockchain Association CEO Kristin Smith expressed relief, stating that the crypto industry can now "breathe a sigh of relief."

Since former SEC Chair Gary Gensler’s departure, the agency has shifted its crypto regulatory stance. Under acting Chair Mark Uyeda, the SEC has formed a Crypto Task Force led by Commissioner Hester Peirce, known for her pro-crypto views. The task force aims to develop a clearer regulatory framework for digital assets. Meanwhile, the SEC has paused or reconsidered enforcement actions against crypto firms launched under Gensler’s leadership.

President Donald Trump’s administration has restructured the SEC, nominating Paul Atkins to lead the agency, pending congressional approval. These developments signal a potential easing of regulatory pressure on the crypto industry, offering a more favorable environment for digital asset innovation.