The cryptocurrency industry is celebrating a landmark ruling by the Supreme Court on Friday that overturned the “Chevron deference,” giving federal courts more say in determining the scope of administrative agencies’ authority.
This 6-3 decision overturns a 40-year-old precedent that allowed executive agencies under the President’s leadership to interpret certain ambiguous laws passed by Congress. For conservatives skeptical of the role of the administrative branch in regulating health or the environment, this represents a major victory.
While several legal scholars have told Decrypt that this ruling may embolden cryptocurrency companies in regulatory limbo, potentially facing lawsuits from the Securities and Exchange Commission (SEC), the legal impact on cryptocurrencies may be overstated.
According to Lee Reiners, a professor at Duke Law School, the SEC’s regulatory authority over cryptocurrencies still hinges on whether cryptocurrencies are classified as securities.
“The core question is, ‘Are cryptocurrencies securities or not?'” he said. “That’s irrelevant to this. This is a question of statutory interpretation, not agency overreach.”
The line between securities and commodities remains unclear in the SEC’s lawsuits against exchanges and digital asset issuers. However, he acknowledged that overturning Chevron deference may give conservative courts dealing with cryptocurrency issues more discretion.
“I don’t think there will be any substantive impact in the short term,” Reiners continued.
Nevertheless, cryptocurrency companies have been arguing for statutory limits on the SEC’s regulatory authority over cryptocurrencies. Last year, cryptocurrency exchange Coinbase attempted to have the SEC sued, arguing that the SEC violated the major questions doctrine, which prohibits agencies from deciding matters of “major economic and political significance” without explicit authorization from Congress.
Coinbase’s argument was that Congress did not authorize the SEC to regulate cryptocurrencies under the Securities Act of 1933 because digital assets do not fit within the agency’s securities framework, known as the Howey test. Ultimately, a federal judge in New York found that the SEC exercised its “Congress-given enforcement powers over ‘virtually any instrument that might be sold as an investment.'”
A Coinbase spokesperson told Decrypt in a written statement, “We appreciate the Supreme Court recognizing the Administrative Procedure Act’s check on agencies. The court found that the SEC violated the APA in many instances, including rejecting a Bitcoin ETF, and we look forward to the court further scrutinizing the SEC’s overreach in cryptocurrencies.”
Sheila Warren, Chief Executive of the Cryptocurrency Innovation Commission, told Decrypt in a written statement that the ruling directly impacts the cryptocurrency industry. She wrote, “The ability for the courts to intervene calls into question the role and firepower of regulatory bodies like the SEC.”
On Thursday, the conservative-leaning Supreme Court also implemented a new standard for the SEC in a more direct manner. In another 6-3 decision, the court ruled in favor of the SEC’s targets having the right to a jury trial in enforcement actions seeking fines.
Jack Graves, a professor at Syracuse University College of Law, told Decrypt in an interview that overall, Friday’s ruling may support arguments of overreach by the SEC. At the same time, the SEC and some federal courts believe that the application of the Howey test by regulatory agencies is fully compliant with the law.
Referring to the SEC’s enforcement actions against cryptocurrency companies, he said, “The SEC is fundamentally just applying precedent and Howey.” But Graves noted that Friday’s ruling strengthens the argument for “major questions” and added, “The further the Supreme Court moves away from deference, the stronger that argument becomes.”
Andrew Hayward, Editor
