(Kitco News) – Amid the uptick in enforcement actions against various companies in the crypto industry in the U.S., one recent legal development holds the potential to see the regulatory cloud over the industry dissipate significantly, which some analysts suggest could help lead to a resurgence in the cryptocurrency bull market.
In a major ruling handed down at the end of June, the U.S. Supreme Court overturned the landmark 1984 decision in Chevron v. Natural Resources Defense Council, which gave rise to a legal proceeding known as the Chevron doctrine.
According to Amy Howe, a reporter for the SCOTUSblog, under the Chevron doctrine, “if Congress has not directly addressed the question at the center of a dispute, a court was required to uphold the agency’s interpretation of the statute as long as it was reasonable.”
Said differently, if there was no law or guideline addressing the specifics of a legal challenge, the governmental agency overseeing that sector of the economy was allowed to use its discretion to determine how any laws on the books could be applied to the matter at hand.
“When the Supreme Court first issued its decision in the Chevron case more than 40 years ago, the decision was not necessarily regarded as a particularly consequential one,” Howe said. “But in the years since then, it became one of the most important rulings on federal administrative law, cited by federal courts more than 18,000 times.”
“[T]he ruling eventually became a target for those seeking to curtail the administrative state, who argued that courts, rather than federal agencies, should say what the law means,” she added. “Under that doctrine, if Congress has not directly addressed the question at the center of a dispute, a court was required to uphold the agency’s interpretation of the statute as long as it was reasonable. But in a 35-page ruling by Chief Justice John Roberts, the justices rejected that doctrine, calling it ‘fundamentally misguided.’”
In the explanation of his opinion in the Loper Bright Enterprises v. Raimondo case which overturned Chevron – now referred to as the Loper Bright decision – Roberts said Chevron deference “is inconsistent with the Administrative Procedure Act, a federal law that sets out the procedures that federal agencies must follow as well as instructions for courts to review actions by those agencies.”
Roberts concluded that the APA directs courts to “decide legal questions by applying their own judgment,” and therefore “makes clear that agency interpretations of statutes – like agency interpretations of the Constitution – are not entitled to deference. Under the APA it thus remains the responsibility of the court to decide whether the law means what the agency says.”
The Supreme Court’s decision to overturn Chevron deference has wide-ranging implications across multiple industries, including cryptocurrencies, which have struggled under the weight of regulators who have utilized the doctrine to wage a crackdown on the burgeoning industry.
“Basically, the crypto regulatory landscape will likely change without the SEC’s thumb on the scale,” said Teresa Goody Guillén, Partner at the BakerHostetler law firm. “The SEC’s regulation of crypto is based on the SEC’s asserted jurisdiction of securities, as defined by the Securities Act of 1933 and Securities Exchange Act of 1934, as well as other federal statutes.”
“Much of the SEC’s regulation of crypto is based on its interpretation of a type of security referred to in the statutes as an investment contract,” she said. “The SEC’s interpretation of a security and investment contract, as well as statutes in general, has historically been afforded deference by the courts under Chevron. Under Loper Bright, that deference is no more.”
“While there is case law further explaining and providing an analytical framework for what constitutes an investment contract, given that these are statutory terms, the SEC was afforded deference,” Goody Guillén said. “Courts no longer afford the SEC deference in interpreting the statutes, which makes their aggressive positions, like those taken in crypto cases, more vulnerable.”
She said overturning Chevron “It is expected to benefit crypto companies, particularly in their litigation positions against the SEC,” but suggested the development “is not expected to dissuade the SEC from continuing to bring enforcement actions and taking an aggressive approach against crypto projects and industry participants.”
“The Loper Bright decision will apply to lower court decisions that applied the Chevron framework to statutory questions, so there is an opportunity to revisit statutory interpretation questions that were previously decided,” she concluded. “Notably, this is not true for Supreme Court precedent, as Loper Bright explains that prior Supreme Court decisions that relied on Chevron will generally be followed, or more precisely, will be entitled to stare decisis.”
According to Jacob Martin, General Partner at 2 Punks Capital, evidence of the effect this decision will have on the broader legal system can be found in the dissenting opinion offered by Justice Elena Kagan.
“Considering Justice Kagan dissented and predicted it will cause a massive shock to the legal system, she's probably right.” Martin said. “Whether it was right or not Chevron Deference moved power into the hands of federal agencies that will now be stripped away, but we're not entirely sure which parts will be upheld or removed I don't think. Some things that may have become the new norm at federal agencies will be removed.”
“Interestingly the CTFC was leaning on Chevron Deference in its case against election gambling and derivatives, aka CTFC using it while the SEC claims they haven't relied on Chevron Deference in their current approach to Crypto,” he added. “If crypto falls under CTFC as a commodity more so than the SEC as a security this could clear things up quite a bit on both WHO is going after crypto and its companies and WHAT they can/can't do.”
“Loper Bright means that the government no longer gets the preferential treatment of Chevron deference,” said Tyler Martinez, Senior Attorney for the National Taxpayers Union Foundation. “That means agencies like the IRS, SEC, and others will have to show how their original statutes – some as old as the 1930s – allow the agencies to regulate crypto. Many of the new rules of the last few years will be called into question before the courts. Congress, of course, can always write a new crypto-specific law.”
Martinez said the decision “makes crypto regulation in the U.S. uncertain for now. That helps some who want to keep crypto free, but hurts those who want to make it a main way for payment and investment. Resolution of the issues is paramount. In the meantime, the heavy-handed regulations like the IRS recent crypto rules, are easy pickings for challenges.”
He added that regulators including the SEC and IRS “will have to refine their approaches and show how existing Congressional statutes allow them to regulate a new technology in this way.”
“I expect confusion among regulators as they adjust to Loper Bright and I expect a lot of litigation in the courts over the recent rules. It will be a headache for the regulators,” Martinez said. “Crypto technology straddles the line between investment securities and currency alternatives. How one wants to use it will change how the government regulates it over time.
He concluded by saying that if the crypto industry can demonstrate “the ability to self-police, it will help avoid some of the more heavy-handed attempts to regulate it. But the industry should be ready to engage in court and Congress to protect the technology.”
The need for clearer regulation
“To the extent that the crypto industry has been held back by federal regulators creating hurdles that were not authorized by Congress, the Chevron decision could serve as a benefit,” said Ken Nahigian, co-founder of Balancing Act Project. “Crypto stakeholders will now be better positioned to challenge agencies' authority in making their decisions.”
“Regulatory guardrails tend to lag behind innovative industries,” he added. “It will be incumbent upon Congress to catch up by establishing those guardrails so regulators can act within the authority granted to them.”
"If you had asked me four years ago, this would have seemed nothing short of a disaster,” said Johnny Gabriele, Head Of Decentralized Finance at CryptoOracle Collective. “However, after watching the weaponization of the SEC by my preferred party to stifle an industry that is so in line with American values, I’ve suddenly found myself on a different footing.”
“Regulation is the immune system of a fair and functioning capitalist system,” he suggested. “That being said, the last handful of congresses we have had in the United States have all been ‘do nothing congresses.’ Our politicians on both sides have strayed from leading and instead opted to fight in the culture wars.”
“Since regulators will now need to follow stricter doctrines, it is on our leadership to pass more comprehensive laws and it is on the electorate to actually hold our representatives accountable,” Gabriele said. “A lot of political hay is being made over the overturning, but this is our opportunity to make democracy work for us.”
For this reason, he said this decision by the Supreme Court “is a net positive for the crypto industry, as the SEC has been trying to apply 80-year-old laws to a technology invented in 2009.”
David Suny, Managing Partner at McCormack Suny, noted that “The regulatory landscape in crypto is scattered as multiple agencies play some role (some to a greater extent than others) in regulating Crypto,” and said this decision could eventually lead to more regulatory clarity.
“You have the SEC (perhaps with the broadest authority and regulates anything meeting the definition of a ‘security’ which includes Crypto investments); the CFTC (which regulates futures contracts involve Crypto); FinCen, which regulates foreign corrupt activities involving Crypto; the IRS (taxable issues related to Crypto); the OCC (regulating banks investments in Crypto); FDIC (regulating insurance issues affected Crypto risks related to bank deposits; and the FTC (regulating consumer protection issues implicated by Crypto),” Suny noted.
“Each of these agencies has specific enabling authority pursuant to the Congressional statutes under which they were created, and authority to take action as to certain subject matters provided,” he said. “Each statute will need to be analyzed to determine whether the agency action in question (if any) related to crypto-specific regulations is within the scope of the statute’s specific authorization. Each respective agency will have any regulations in uncertain areas of regulation, or areas that were not addressed by Congress in the statutory scheme struck.”
Suny sees this as long-term positive for the industry. “Conventional thinking is that less governmental agency regulation tends to favor business (i.e. crypto companies) and potentially negatively impact consumers. And in general, the overturning of the Chevron doctrine will mean that an agency regulation is more likely to be unenforceable as the agency is not entitled to any deference in determining its statutory scope of authority,” he said.
As for how the government is likely to respond to the move in relation to cryptocurrency projects, Suny said “The executive branch (i.e., federal agencies) will have challenges on their hands.”
“Crypto seems to fit within the core concept of being a financial investment, and so the old enabling statutes that created and authorized agencies to deal with ‘Investor protection’ issues may be interpreted to apply to Crypto investments and regulations may be upheld. The specifics of each regulation would need to be examined, though, to see whether the regulation is within the scope of the authority granted by Congress to the agency in question.”
Suny said that, “Absent specific legislation, addressing Crypto and specifically authorizing a particular agency to issue regulations because ‘Digital assets’ are a new investment phenomenon, federal courts may determine that regulators have overstepped their bounds.”
“In 2022 Congress began to take steps, on a bipartisan basis, to provide some clarity, in May of 2024 the House passed the Financial and Innovation Technology for the 21st Century bill,” he noted. “It clarifies the authority of various agencies to regulate crypto and while the current President does not support its passage, so its status in the Senate is uncertain, the bipartisan nature of the bill means that the public should be seeing for clarification in the future on the appropriate role of federal agencies in regulating crypto.”
A positive for the industry
“The Supreme Court’s decision to overturn the Chevron doctrine is a positive outcome for crypto space,” said Kadan Stadelmann, CTO at Komodo. “Prior to the Supreme Court’s ruling, federal agencies had a lot of power to make decisions according to how they interpreted the laws. Now, the courts have much more authority to check the power of federal agencies. This wasn’t really possible in the last 40 years.”
“For the crypto space, this means the SEC should have less authority on policy decisions and legal actions moving forward,” he added. “Gary Gensler can no longer have total control over the crypto industry’s future.”
Stadelmann added that crypto companies are also likely to benefit “since the Supreme Court’s ruling limits the SEC’s role in making important regulatory interpretations. The hope is that legitimate crypto companies won’t have to worry as much about the SEC’s unjust and unpredictable legal enforcement as we’ve seen recently in the Consensys case.”
“However, legal cases involving crypto companies may take longer and require more resources when laws are more ambiguous since the courts are now required to make legal decisions,” he warned.
“I think overturning the Chevron doctrine is one of the first practical steps towards the U.S. Congress passing a comprehensive crypto bill (i.e. FIT21) with clear regulatory guidelines and less room for legal ambiguity,” Stadelmann concluded. “U.S. regulators are looking to adopt regulations similar to MiCA in the EU.”
Chris Hermida, co-founder and CEO of Switchboard, said the decision is “a big win for crypto companies in the U.S. as it removes some of the legal teeth and calls into question many of the arbitrary agency rules that have impacted a number of crypto companies including exchanges, wallets, custodians, etc.”
“While it doesn’t directly change the law per se, it sends a strong message that courts should ultimately have the final interpretation of the law and not defer to agencies,” he added. “It likely means future rules will be more narrowly tailored and give crypto companies, especially heavily regulated ones such as exchanges, more breathing room.”
Hermida sees this as a positive for crypto companies, in general, as there was previously a concern that regulatory agencies “could implement arbitrary rules” at their discretion.
“This ruling makes arbitrary rules much less likely to pass legal muster, reducing regulatory risk and giving more breathing room to crypto firms,” he said. “In practice, the biggest winners of Chevron being overturned are those operating on the more highly regulated side of crypto in the U.S. (i.e. exchanges/money transmitters, etc…).”
"For many of the key questions, it’s still up to the courts to decide/revisit or Congress to legislate,” Hermida noted. “As an example, this doesn’t directly change things such as the Howey Test or other things that the Supreme Court has already ruled on. Much of what happens will depend on the next administration/congress. The hope is that it ultimately leads to a much better regulatory environment in the U.S. via a combination of crypto-friendly regulatory reform and (hopefully) more victories in court.”
“It’s not hard to see why Chevron being overturned has been celebrated in crypto circles,” said Billy Luedtke, founder and CEO of Intuition. “Chevron gave regulators deference when interpreting ambiguities in the law, and it being overturned shifts this power to judges.”
“Crypto in the U.S., lacking a legal framework or clear guidance, has been subject to aggressive regulation by enforcement, creating an industry perception wherein shifting power from the SEC to almost anywhere else is viewed as a net positive,” he noted. “In a more general sense, it points to a political climate wherein perhaps, outside of the specific scope of Chevron, regulators are being given less autonomy to interpret and enforce laws as they see fit.”
Luedtke suggested that the ruling “might help bolster existing arguments and contribute to favorable rulings on the margin for crypto companies,” but said “This falls short of a watershed moment. The SEC will likely still continue to bring enforcement actions premised on various tokens being securities – something that will require legislation to provide clear guidance and practical operating boundaries.”
Judges aren’t necessarily always better positioned to resolve complex ambiguity in technical fields, so my hope is that the Supreme Court’s ruling bolsters the case for a comprehensive and clear policy framework as we saw attempted with FIT21 in the U.S. and successfully enacted with MiCA in the EU,” he added. “Much of Chevron’s mainstream media coverage has focused on the implications for industries regulated by the EPA or FDA, but our perception within the crypto industry is unique as a space operating in a relative vacuum of guidance or productive two-way industry and regulator dialogue.”
Diego Apaza, CEO at Alpha Stocks Lab, suggested that U.S. regulators could soon find themselves on the receiving end of the same high level of scrutiny they have placed on the crypto industry in recent years.
“Reversing the Chevron doctrine will probably mean more harsh legal auditing of executive measures, which will affect how entities like the SEC and CFTC control the crypto space,” he said. “The impact of this reversal has its pros and cons.”
“Removing such constraints may prevent governmental groups from taking what people may see as unnecessary or excessive authority measures,” Apaza said. “On the other hand, this could also increase legal misunderstandings as there would be more conflicting judicial opinions.”
“In order to try and ensure consistent legislative auditing, the government may respond by defining and implementing particular regulations through legislative processes,” he added. “Also, agencies may become careful when creating regulations to prepare for likely legal challenges.”
“Basically, the Supreme Court's ruling is a time of change for lawmakers and the cryptocurrency industry. Organizations should be mindful and on the lookout for more legal guidance to handle this new change,” Apaza concluded. “A more balanced regulatory environment may result from the minor shift in power towards the court, but in the near run, this could also lead to increased complication and uncertainty. Only time will tell!”
