When the leaders of the American Revolution signed the Declaration of Independence on July 4, 1776, they had no guarantee of victory. The battle for independence was underway, and their prospects were uncertain. Despite occasional victories, these audacious freedom fighters were grossly outnumbered and had difficulty retaining volunteer soldiers. Their commitment to the cause of freedom was their only fighting chance.
Cryptocurrency as an open-source software industry is in a similar predicament. The United States Securities and Exchange Commission and banking regulators are trying to dismantle this budding industry, brandishing lawsuits and an intimidating array of regulatory measures designed to make compliance impossible.
Crypto’s fighting chance is embedded within the very words and legal principles put forth by America’s founders in the Constitution. They designed the Constitution on the principle of the separation of powers inspired by the Enlightenment. Their vision was of a system with three separate but coequal branches of government, each acting as a safeguard against the potential abuse of power by the others.
Coinbase stands at the vanguard in the modern battlefield of cryptocurrency as it stares down a lawsuit brought by the SEC. In June, the company delivered a declaration in response to the lawsuit that leans on the “major questions doctrine.” This essential legal principle holds agencies like the SEC accountable when they circumvent Congress’ role in our constitutional structure and manipulate vague and antiquated statutes for their own ends.
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In recent landmark cases that curbed executive overreach in both the Obama and Biden administrations, the Supreme Court has underscored the importance of the major questions doctrine. This doctrine underlines the crucial point that when agencies attempt to regulate questions of significant national or political importance, they must have explicit authorization from Congress.
This doctrine is not new nor untested. When the Food and Drug Administration (FDA) attempted to regulate cigarettes, justifying action by defining them under the FDA’s authority over drugs, the Supreme Court struck down the agency’s overreach. The court pointed out that nicotine, while technically a drug, did not fall under the palliative class of drugs Congress had intended when creating the FDA.
A similar verdict was reached regarding the Environmental Protection Agency’s (EPA) attempt to regulate carbon emissions. The EPA was prevented from broadening its mandate over power plant pollution to set a national policy on carbon emissions, which was beyond its remit and would usurp the role of the legislature.
The Supreme Court’s decision striking down Biden’s student loan forgiveness program is the most recent invocation of the major questions doctrine. Coinbase general counsel Paul Grewal astutely observed that one could substitute crypto for student loans in the court’s ruling and envision a similar outcome.
Actually, it’s far worse. The “economic and political significance” of falsely claiming authority over all digital assets other than BTC is not just “staggering,” but untethered to the fundamental requirement that there be enforceable rights between enterprise and purchaser. 2/3
SEC Chairman Gary Gensler’s apologists argue that the securities laws from the 1930s have successfully adapted to the internet era, hence they can adapt to crypto as well. This argument would carry weight if the SEC made similar adaptations to crypto as they did to the internet.
Over the years, the SEC has proven its capacity to evolve, allowing prospectus delivery over the internet and sanctioning executive communications through social media. But when it comes to crypto, the SEC stubbornly insists that developers must comply with laws that, without nuanced adaptation, are impossible to adhere to.
This grudging approach of “just come in and register” while blatantly ignoring the numerous questions raised in Coinbase’s 2022 request for rulemaking is exactly why the major questions doctrine — as interpreted by Justices Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett — is so relevant to the SEC’s approach to crypto regulation. The doctrine acts as a constitutional compass, guiding the direction of authority, and restraining overreach by various agencies.
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The framers of the Constitution left us an arsenal of tools to wage a revolution for freedom within the design of the U.S. Constitution. Legal scholars and constitutionalists, including Gorsuch, are reviving the founders’ vision of a delicate balance of power among the three branches with the major questions doctrine.
Crypto defendants, such as Coinbase, Ripple and Binance, are pioneering a revolution of their own. They are at the forefront of a movement aiming to decentralize power, shifting it from centralized institutions to the hands of individuals. In their struggle, they are armed with the very same tools our founders used to shape this nation.
There’s a striking parallel between our founders’ fight for political freedom and the current struggle for financial freedom in the digital realm. The underpinnings of both these movements are deeply rooted in a quest for autonomy and liberty.
J.W. Verret is an associate professor at George Mason University’s Antonin Scalia Law School. He is a practicing crypto forensic accountant and also practices securities law at Lawrence Law LLC. He is a member of the Financial Accounting Standards Board’s Advisory Council and a former member of the SEC Investor Advisory Committee. He also leads the Crypto Freedom Lab, a think tank fighting for policy change to preserve freedom and privacy for crypto developers and users.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.