SEC’s Crypto War: Could the Supreme Court Stop It?

Crypto Revolution

When the American Revolutionaries signed the Declaration of Independence on July 4, 1776, they had no guarantee of success. The fight for freedom was in full swing and their future seemed uncertain. Despite occasional successes, the brave freedom fighters were outnumbered and it was difficult to keep volunteers motivated. The only way they could win was to remain committed to their cause.

Cryptocurrency, as an open-source software industry, is in a similar situation. The US Securities and Exchange Commission (SEC) and banking regulators are trying to shut down this emerging industry, using lawsuits and a range of intimidating regulatory measures intended to make compliance impossible.

Crypto’s only hope lies in the words and legal principles set forth by America’s founders in the Constitution. They designed the Constitution based on the principle of separation of powers, inspired by the Enlightenment. Their vision was of a system with three separate but equal branches of government, each acting as a safeguard against the potential abuse of power by the others.

Coinbase stands at the forefront of the modern crypto battlefield, facing a lawsuit initiated by the SEC. In June, the company filed a response to the lawsuit, citing the “major questions doctrine.” This important legal principle holds agencies such as the SEC accountable when they bypass Congress’ role in our constitutional structure and manipulate vague and outdated laws for their own ends.

The Major Questions Doctrine and Crypto

The Supreme Court has repeatedly emphasized the importance of the major questions doctrine, which states that when agencies attempt to regulate matters of great national or political significance, they must receive explicit authorization from Congress. This doctrine is not new; the FDA was barred from regulating cigarettes under the palliative class of drugs, and the EPA was prohibited from setting a national policy on carbon emissions.

The most recent application of the major questions doctrine was the Supreme Court’s decision to strike down the Biden administration’s student loan forgiveness program. Coinbase general counsel Paul Grewal noted that if one were to replace student loans with crypto, the same outcome would likely result.

Crypto is an increasingly relevant topic in the realm of major questions doctrine. As the legal landscape continues to evolve, it is important to recognize the implications of this doctrine on crypto and other emerging technologies.

Adapting Crypto Regulations to the Internet Era

Supporters of SEC Chairman Gary Gensler claim that the securities laws from the 1930s have been effectively adjusted to the internet age, hence they can be tailored to crypto as well. This argument would be more convincing if the SEC had taken similar steps for crypto as they did for the internet.

Throughout the years, the SEC has proven its ability to evolve, allowing the delivery of prospectuses online and permitting executive communications through social media. However, when it comes to crypto, the SEC is persistently demanding that developers must comply with laws that, without further modifications, are impossible to follow.

This reluctant stance of “just register” while ignoring the numerous queries raised in Coinbase’s 2022 request for rulemaking is the very reason why the major questions doctrine — as interpreted by Justices Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett — is so applicable to the SEC’s approach to crypto regulation. This doctrine functions as a constitutional compass, guiding the direction of authority and restraining any overreach by various agencies.

The creators of the Constitution left us with a range of tools to fight for freedom within the framework of the U.S. Constitution. Legal scholars and constitutionalists, including Gorsuch, are reviving the founders’ vision of a balanced distribution of power among the three branches with the major questions doctrine.

Crypto defendants, such as Coinbase, Ripple and Binance, are spearheading a revolution of their own. They are at the forefront of a movement that seeks to decentralize power, transferring it from centralized institutions to the people. In their fight, they are equipped with the same tools our founders used to construct this nation.

The relationship between our founders’ battle for political independence and the current fight for economic freedom in the digital world is remarkable. The foundations of both these movements are rooted in a pursuit of autonomy and freedom.