Another week, another Ken Paxton lawsuit against federal overreach, this time on the cutting edge of cryptocurrency regulation.
A group of states is suing the Security Exchanges Commission (SEC), claiming the commission is overstepping its authority in regulating digital assets like cryptocurrencies — arguing that the SEC’s actions stifle state-level innovation and impose federal control without congressional approval.
Eighteen state attorneys general have joined the lawsuit, one of which is Texas Attorney General Ken Paxton, in addition to DeFi Education Fund, a nonpartisan research and advocacy group.
Along with naming the SEC directly in the complaint, it also lists SEC Chair Gary Gensler, among other officials.
If Gensler’s name rings a vague bell, it may be because he was the chief financial officer for Hillary Clinton’s ill-fated presidential run.
The states want the court to stop the SEC from enforcing regulations and allow them to manage digital assets with their own laws.
“The SEC’s sweeping assertion of regulatory jurisdiction is untenable,” the suit states. “The digital assets implicated here are just that — assets, not investment contracts covered by federal securities laws.”
“They do not entail any traditional investment relationship, in which the investor invests capital and the promoter assumes an ongoing obligation to use that capital in a common enterprise to generate returns that the investor will share.”
The lawsuit goes on to explain that the laws defining what counts as an “investment contract” were written in a clear way, and past U.S. Supreme Court decisions support this definition. Because of this, the complaint asserts, the SEC does not have broad authority to regulate all digital asset transactions as if they were securities. The argument is that the SEC is overreaching beyond what these laws and past rulings allow.
The complaint, filed in Kentucky district court, is asking the court to declare that digital asset transactions are not considered securities if they don’t involve a promise to manage assets for profit. They also want the court to stop the SEC from forcing digital asset platforms to register as securities-related businesses if they don’t meet those conditions. Additionally, the states claim the SEC broke rules by not following proper procedures.
Snip.
While on the campaign trail, President-elect Donald Trump vowed to protect the blockchain industry, making a bevy of promises to crypto enthusiasts.
Trump took the stage at the Libertarian National Convention back in May, where he promised to stop “Joe Biden’s crusade to crush crypto.” In July he said he would “fire Gary Gensler” on day one of his new administration.
“No longer will your government sit by and watch as Bitcoin jobs and businesses flee to other countries, because America’s laws are too unclear and too tough and too angry and too stiff,” Trump said while delivering the keynote address at a Bitcoin conference. “We will keep each and every Bitcoin job in the United States of America, that’s what we’re going to be doing.”
Texas has become a major center of the crypto and Bitcoin industry in America. Sen. Ted Cruz (R-TX) is a vocal advocate for the emerging finance sector, and Gov. Greg Abbott signaled he will continue to be friendly to the crypto community, describing himself as a “crypto law proposal supporter.”
There’s a long-running debate about just what the hell cryptocurrencies are under federal law. Unlike other securities (say, a stock or bond), a unit of cryptocurrency is not a token that represents a tangible legal entity in the real world. It’s not a currency as traditionally understood, as it is not backed by specie or the power and authority of a government. It’s not a commodity, because what commodity can be moved across the world at the speed of light?
If it doesn’t actually fit the profile of anything that legislation has specified that the government regulates, then maybe, as Paxton et al assert, then the federal government shouldn’t regulate it. That would seem to be the proper constitutional interpretation under the Tenth Amendment.
While I’m still skeptical of the long-term usefulness of cryptocurrency (though with Bitcoin hovering around $90,000, I sure wish I had mined some back when it was easier to do), the Trump Administration is filled with very smart people who believe in Bitcoin and other cryptocurrencies. History teaches us that it’s best to let new technologies shake out without government interference, so let’s hope Paxton and company’s lawsuit succeeds.