SEC Drops Crypto Dealer Rule Appeal, Signaling New Era

The U.S. Securities and Exchange Commission (SEC) has withdrawn its appeal in the lawsuit challenging the dealer rule, marking a significant shift in the agency's approach to cryptocurrency regulation under new leadership. The motion to dismiss was filed on February 19 in the U.S. Court of Appeals for the Fifth Circuit, effectively ending a legal battle that began in April 2024.

The dealer rule, introduced in February 2024, required market participants to register with the SEC if they regularly expressed trading interest close to the best price on both sides of the market for the same security. The rule also applied to those who earned revenue primarily from capturing bid-ask spreads or from trading venue incentives. Under the rule's requirements, affected parties would have needed to register with the commission, join a self-regulatory organization, and follow federal securities laws and regulatory obligations.

The crypto industry strongly opposed these requirements when they were first announced. Industry groups warned that the rules could harm market innovation, increase costs, and reduce market access and competition. In response to these concerns, digital asset firms filed a complaint in Texas against the SEC and then-Chairman Gary Gensler. The U.S. district court for the Northern Texas district later ruled to vacate the dealer rule, citing Congress's historical definition of a dealer as someone who has customers.

The SEC's appeal of this decision came in January 2025, during the final days of Gary Gensler's leadership. However, the appointment of Mark T. Uyeda as Acting Chairman brought immediate changes to the agency's approach. Under Uyeda's leadership, the SEC has created a new Crypto Task Force headed by Commissioner Hester Peirce, who has previously supported crypto-friendly policies. This task force aims to develop clear rules for digital assets, moving away from the enforcement-focused approach of the previous administration.

The SEC has also paused ongoing legal actions against major cryptocurrency exchanges, including Binance and Coinbase, while the new task force reviews regulatory strategies. Blockchain Association CEO Kristin Smith welcomed the SEC's decision to drop the appeal, stating, "It's a new day at the SEC following former Chair Gensler's crusade against crypto – today's voluntary dismissal by the agency is welcome news." Both parties in the lawsuit have agreed to cover their own legal costs, according to the motion signed by SEC Senior Special Counsel Samuel B. Goldstein.

Industry groups across the