The crypto industry has fired another shot in its ongoing clash with regulatory authorities, as two prominent groups have joined forces to challenge the U.S. Securities and Exchange Commission's (SEC) controversial expansion of the "Dealer Rule." The Blockchain Association (BA) and the Crypto Freedom Alliance of Texas (CFAT) have filed a lawsuit against the SEC in the Northern District of Texas, arguing that the regulator's actions threaten to stifle innovation in the digital asset market.

On April 23, the BA announced the lawsuit, marking a concerted effort to push back against the SEC's recent broadening of the definition of "dealer" within the Securities Exchange Act of 1934. The industry groups assert that the SEC has overstepped its authority by implementing an overly broad interpretation of the term, thereby creating a vague and burdensome regulatory environment for businesses involved in digital asset trading.

The lawsuit revolves around the SEC's adoption of new rules in February that redefine the terms "dealer" and "government securities dealer." This expansion effectively requires more crypto market participants to register, join a self-regulatory organization, and comply with federal securities laws, a move that the BA and CFAT argue oversteps the SEC's statutory authority.

Kristin Smith, the CEO of the Blockchain Association, lambasted the SEC's actions as "blatant attempts to unlawfully regulate outside its authority." She further stated, "The Dealer Rule advances the SEC's anti-digital asset crusade and unlawfully redefines the boundaries of its statutory authority granted to it by Congress, threatening to drive U.S. companies offshore and incite fear in American innovators."

The lawsuit alleges that the SEC failed to adequately address public concerns raised during the limited comment period and neglected to assess the potential negative impacts of the rule. As a result, the BA and CFAT are seeking a court order to overturn the Dealer Rule expansion based on violations of the Administrative Procedure Act (APA).

The APA serves as a crucial safeguard, ensuring fair and transparent rulemaking by requiring agencies to consider public feedback and provide clear guidelines. By seeking "declaratory judgment and injunctive relief" against the regulators, the industry groups aim to overturn the expansion of the rule and ultimately prohibit its use against the industry "before more harm can be done by this rabid regulator," according to Smith.

Representing a significant portion of the cryptocurrency industry, including leading investors, companies, and projects, the BA and CFAT are at the forefront of advocating for a national policy framework within the U.S. that fosters local innovation and responsible development within the digital asset space.

As the legal battle unfolds, the crypto community will keenly watch this case, which could have far-reaching implications for the industry's future in the United States. The outcome of this lawsuit will not only shape the regulatory landscape but also serve as a litmus test for the SEC's authority and the boundaries within which it operates.