The U.S. Securities and Exchange Commission (SEC) has ended its effort to overturn a court ruling that blocked a controversial rule on broker-dealers in the cryptocurrency sector.

In a brief submitted to the Fifth Circuit Court of Appeals on February 19, the SEC stated its decision to "voluntarily dismiss this appeal," a move that faced no opposition.

The legal tussle originated from an appeal by the SEC last month, under the waning days of former SEC Chair Gary Gensler's tenure, to a November verdict by a Texas federal court judge.

The lawsuit had been initiated by crypto trade organizations, the Blockchain Association and the Crypto Freedom Alliance of Texas, which challenged the SEC's proposed redefinition of a dealer. This redefinition would have mandated crypto liquidity providers and automated market makers with capital exceeding $50 million to register with the agency.

The crypto advocacy groups contended that such a mandate would impose unmanageable obligations on decentralized finance (DeFi) protocols, which often lack a centralized governing body and would struggle to comply with Know Your Customer and Anti-Money Laundering regulations. Texas District Court Judge Reed O'Connor ruled that the SEC had "exceeded its statutory authority" with this expansive definition of a dealer.

With the SEC's withdrawal from the appeal, the litigation, which the two crypto industry advocacy groups jointly initiated in April, has now concluded. Following the dismissal, Blockchain Association CEO Kristin Smith expressed relief on February 19, stating, "The crypto industry can breathe a sigh of relief."

In related developments, since the departure of Gensler, President Donald Trump has revamped the SEC, aiming to dial back the agency's crypto-related enforcement and litigation. Mark Uyeda currently serves as acting chair, while nominee Paul Atkins awaits congressional approval to lead the SEC.

Under Uyeda's interim leadership, the SEC has formed a Crypto Task Force headed by Commissioner Hester Peirce, who is known for her crypto-friendly stance. The task force's goal is to establish a regulatory framework for digital assets.

Additionally, the SEC has paused or delayed legal actions against crypto firms that were initiated during Gensler's leadership, pending further evaluation and recommendations from the Crypto Task Force.

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