The impact of the United States Supreme Court’s Loper Bright vs. Raimondo decision is potentially profound for the cryptocurrency industry.
At the highest level, it may nudge the balance of power between the judicial and executive branches of the US government.
As a result of the 6–3 decision, US courts will no longer be required to “defer” to federal agencies when interpreting ambiguous statutes — as had been the case since the high court’s Chevron USA Inc. vs. Natural Resources Defense Council ruling in 1984.
“Chevron is overruled,” declared the court on June 28.
The decision’s scope is broad. “This ruling has impacts all across the administrative state, not just technology, but also finance, healthcare, the environment, etc.,” Jim Lundy, securities enforcement and litigation partner at Foley & Lardner, and a former senior regulatory counsel at the US Securities and Exchange Commission, told Cointelegraph, adding:
“The Supreme Court did the appropriate thing with this ruling because the Chevron deference had started to stretch too far for certain agencies.”
Loper Bright’s impact will be “enormous” in the long run, according to Joshua Simmons, partner at Wiley Rein and adjunct professor at the University of Virginia School of Law.
Simmons acknowledged the ruling was a “game changer” for the crypto and blockchain sector in particular.
“The decision takes away the deference that agencies had,” Simmons told Cointelegraph, but on a more practical level, it means that more companies will now bring challenges against the agencies, and when they do, they will enjoy a more level playing field.
SEC “oversteps its authority”
Joanna Wasick, a litigation partner in the New York office of BakerHostetler, referenced the oral arguments made before the Supreme Court, telling Cointelegraph:
“Loper Bright’s attorney, Paul Clement, pointed directly to crypto as an example of how the SEC [Securities and Exchange Commission] oversteps its authority. Obviously crypto was not an issue for the Supreme Court to decide in Loper Bright. But the same winning arguments made there may have similar sway when that day comes.”
The Supreme Court’s decision should further prod Congress to pass crypto reform legislation, suggested Simmons, and also encourage crypto and blockchain-related companies to bring lawsuits.
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It also “validates” a number of challenges the industry has already brought against agencies, such as Coinbase vs. SEC in the US Court of Appeals for the Third Circuit (Wiley Rein authored an amicus brief on behalf of Coinbase), and the ruling may boost crypto software firm Consensys in its struggles with the SEC.
To this last point, Peter Van Valkenburgh recently wrote in a Coin Center blog:
“Without Chevron, a judge in SEC v. Consensys need not defer to the SEC’s own understanding of what exactly a ‘broker’ is and whether it includes the developers of a wallet like Metamask. The judge can interpret the law herself.”
Uniswap Labs also referenced Loper Bright in a July 9 letter urging the SEC to drop its proposal to rule over decentralized finance. “The Commission drafted the proposed amendments against a legal backdrop that no longer exists,” it wrote.
Other federal agencies (not just the SEC) may soon feel the weight of Loper, too. Custodia, a state-chartered crypto bank, was refused entry into the Federal Reserve system, and it recently appealed the decision to deny it a Fed Master Account.
According to Axios, recent Supreme Court rulings, including Loper, which “narrow agency discretion could help Custodia’s case.”
Not surprisingly, many technology luminaries were exulting in the aftermath of the June 28 ruling. Kathryn Haun called it “the most significant court case for technology policy in the U.S. in years.” Its effect on frontier tech industries “like AI, biotech, crypto, clean energy, and beyond, can’t be overstated.”
But maybe this is going too far.
Importantly, the ruling does not do away with the rulemaking capabilities and oversight of regulatory agencies, Lundy told Cointelegraph. What it does do is remove the Chevron deference to these agencies when the rulemaking is “ambiguous.” This constraint limits its applicability.
Moreover, there has not been “much in the way of rulemaking” in the crypto and blockchain industry, “so historically this is not a ‘game changer,’” commented Lundy.
That said, “policymakers at the SEC and CFTC [Commodity Futures Trading Commission] will want to be mindful of this Supreme Court decision when crafting proposed rules for the cryptocurrency and blockchain industries,” Lundy added.
A view from abroad
How is Loper Bright seen in Europe, which recently implemented the forward-looking Markets in Crypto-Assets Regulation (MiCA) framework, a comprehensive approach to technology policy in the crypto space?
“The potential impact of Loper Bright on the cryptocurrency and blockchain industry could be substantial if it reduces regulatory barriers by limiting the SEC’s broad interpretive powers,” Annabelle Rau, a lawyer at McDermott Will & Emery based in Cologne, Germany, told Cointelegraph.
MiCA, for instance, aims to facilitate the tokenization of digital assets and the provision of crypto services by providing a clear regulatory framework that balances innovation with oversight.
“A similar reduction in regulatory barriers in the US post-Loper Bright could encourage innovation in digital asset tokenization,” said Rau, especially if it led to a more predictable regulatory landscape through consistent judicial rulings rather than variable agency interpretations.
Still, a positive regulatory framework also depends on how uniformly these rules are interpreted by the courts, added Rau, “a challenge the EU seeks to address with detailed legislation to ensure coherence.”
Is Loper a game-changer?
Is Loper a game-changer?
“Does it [the ruling] decide the game? Not necessarily,” said Wasick when asked about the decision’s impact on US crypto firms. “Does Loper Bright change the game? Yes.”
The industry has long contended that the SEC has misinterpreted the statutory term “investment contract,” thereby pulling the entire crypto sector under the agency’s authority. But now, Wasick said:
“Loper Bright confirms that courts have final say on what an ‘investment contract’ is, without tipping the scales in the SEC’s favor.”
None of the district court cases in which the court agreed with the SEC’s “investment contract” interpretation turned on Chevron deference,” Wasick continued. “So those decisions are still good law.”
But Loper and other recent administrative high-court cases signal that the Supreme Court thinks that federal agencies have overstepped their authority. “And that suggests a certain receptivity to the argument that Congress, not an agency, should decide if and how to regulate Web3,” she added.
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Wiley’s Simmons cautioned that “it will take time” before Loper’s full impact is felt because “the agencies are not going to change their approach in the short term.” More test cases and litigation will probably be required before they alter their processes, and for that reason, it behooves the industry to be “proactive,” he said.
Lundy agreed that more challenges lay ahead. “This new ruling will be studied by the defense bar for new and creative ways to challenge SEC and CFTC rulemakings for the cryptocurrency and blockchain industries.”
