The cryptocurrency industry celebrated a significant ruling by the Supreme Court on Friday, which overturned the “Chevron deference” and gave federal courts more say in determining the scope of administrative agencies’ responsibilities.
This landmark 6-3 decision overturned a four-decade-old principle that granted administrative agencies under presidential leadership the authority to interpret certain ambiguous laws enacted by Congress. For conservatives skeptical of the role of the administrative branch in regulating health or the environment, this represents a major victory.
Lee Reiners, a professor at Duke University School of Law, stated that while several legal scholars have told Decrypt that this ruling may embolden struggling cryptocurrency companies, they could still face litigation from the Securities and Exchange Commission (SEC). However, the legal impact on cryptocurrencies may have been exaggerated.
In an interview, Reiners explained that the SEC’s regulatory power over cryptocurrencies still depends on whether cryptocurrencies are deemed securities.
“The core question is, ‘Are cryptocurrencies securities or not?'” he said. “This is unrelated to the ruling. It’s a question of legal interpretation, not agency overreach.”
The line between securities and commodities remains unclear in the SEC’s lawsuits against exchanges and digital asset issuers. However, Reiners acknowledged that overturning Chevron deference may provide more discretion to conservative courts dealing with cryptocurrency issues.
“I don’t think there will be any substantive impact in the short term,” Reiners continued.
Nevertheless, cryptocurrency companies have been arguing for statutory limitations on the SEC’s regulatory power over cryptocurrencies. Last year, cryptocurrency exchange Coinbase attempted to force the SEC to sue, arguing that the SEC violated the “major questions” principle, which prohibits agencies from determining issues of “major economic and political significance” without clear authorization from Congress.
Coinbase’s argument was that Congress did not authorize the SEC to regulate cryptocurrencies under the 1933 Securities Act 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 exercises “Congressionally delegated enforcement authority over ‘almost any instrument that may be sold as an investment.'”
A Coinbase spokesperson told Decrypt in a written statement, “We appreciate the Supreme Court’s recognition of the Administrative Procedure Act as a check on agencies. The court found that the SEC has violated the APA in numerous instances, including the denial of a Bitcoin ETF, and we look forward to further judicial review of the SEC’s overreach in cryptocurrency.”
Sheila Warren, CEO of the Crypto Innovation Council, stated in a written statement to Decrypt that the ruling directly affects the cryptocurrency industry. She wrote, “When courts have the ability to intervene, the role and firepower of regulatory bodies like the SEC becomes a question.”
Paul Grewal, Coinbase’s Chief Legal Officer, noted that the conservative-leaning Supreme Court implemented a new standard for the SEC in a more direct manner on Thursday. In another 6-3 decision, the court ruled in favor of a jury trial for enforcement actions seeking fines by the SEC in the case of SEC v. Jarkesy.
Jack Graves, a professor at Syracuse University College of Law, stated in an interview with Decrypt that overall, Friday’s ruling may support the argument of the SEC’s overreach. Meanwhile, the SEC and some federal courts argue that the application of the Howey Test by regulatory agencies is fully consistent with the law.
Speaking about the SEC’s enforcement actions against cryptocurrency companies, Graves said, “In essence, the SEC is just applying precedent and Howey.” However, Graves stated that Friday’s ruling reinforces the argument of “major questions” and added, “The further the Supreme Court moves away from deference, the stronger this argument becomes.”
Andrew Hayward, Editor