SEC Scraps Gensler’s Crypto Rules: Major Win for Crypto Industry in 2025

SEC Drops Gensler-Era Crypto Rules in Landmark Move: A New Dawn for U.S. Crypto Regulation

In a landmark shift for the U.S. cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) has officially withdrawn several controversial regulatory proposals that were introduced under the leadership of former Chair Gary Gensler. The move has been widely interpreted as a regulatory victory for the crypto space, signaling the potential end of the SEC’s aggressive "regulation by enforcement" era.

Custody Rule & Rule 3b-16 Scrapped

As reported by FOX Business journalist Eleanor Terrett in a widely circulated X post, the SEC has dropped multiple high-profile rule proposals, including the Custody Rule and Exchange Act Rule 3b-16. These proposals had become flashpoints in the ongoing battle between regulators and the crypto industry.

What Was the Custody Rule?

Under Gensler’s proposed expansion, the Custody Rule would have:

Broadened the definition of custody to include virtually all crypto assets.
Required investment advisers to custody crypto with "qualified custodians" only.
Imposed stricter conditions on state-chartered crypto custodians.

Critics argued that the rule would have significantly restricted financial institutions from offering services to crypto firms, possibly pushing innovation offshore and cutting off access to essential banking services.

"The Custody Rule aimed to cover all client assets including crypto, broadened what counts as custody, and raised concerns about whether certain state chartered entities should be qualified custodians," Terrett explained.

Rule 3b-16 and DeFi in the Crosshairs

Another major reversal is the withdrawal of Rule 3b-16, a controversial measure that would have subjected DeFi platforms and crypto exchanges to full SEC registration as national securities exchanges or broker-dealers.

This rule sparked fierce debate in 2023 and 2024, as it threatened to apply traditional securities regulations to decentralized systems, something industry leaders saw as both incompatible and stifling.

According to Terrett, the proposal “would have treated DeFi protocols as national securities exchanges,” making their development and operation in the U.S. far more difficult under the previous regulatory regime.

Other Withdrawn Proposals: Cybersecurity & ESG Reporting

In addition to crypto-focused rules, the SEC also dropped proposals related to cybersecurity risk management and ESG (Environmental, Social, and Governance) disclosures for investment advisors and funds. These rules, though not crypto-specific, would have added further regulatory burdens on firms operating in the space.

Crypto Industry Celebrates Regulatory U-Turn

The regulatory rollback has been welcomed by crypto advocates, many of whom see this as the beginning of a more balanced and innovation-friendly approach to digital assets.

SEC Strengthens Crypto Oversight with Roundtable on Custody Rules: Key Industry Voices Join

Paul Grewal, Chief Legal Officer at Coinbase, praised the decision in a celebratory X post:

“Down goes 3b-16, qualified custodian, and all the other unfinished Gensler rule proposals. SEC just issued final notices rescinding them all.”

Crypto supporters argue that under Gensler’s leadership, the SEC pushed a hostile regulatory agenda that created uncertainty, stifled innovation, and drove businesses overseas. These latest developments mark a clear departure from that era.

Political Shift Behind the Regulatory Change

This regulatory shift follows the inauguration of President Donald Trump in January 2025, which brought a new pro-business stance to Washington. Under the new administration, Paul Atkins, a former SEC commissioner known for his market-friendly views, has emerged as a key figure in reforming the agency’s approach to crypto.

Notably, the SEC also provided new April 2025 guidance clarifying how digital assets are classified as securities, providing long-sought clarity for token issuers and exchanges.

Many analysts now believe the U.S. is entering a “post-Gensler” phase, where rules are shaped with industry engagement rather than enforced through litigation.

Altcoin ETFs and Delays Continue

While this regulatory softening is good news for crypto, it doesn’t mean all hurdles are gone. The SEC also announced a delay in the decision on the Grayscale Spot Hedera (HBAR) ETF, suggesting that ETFs for altcoins may still face intense scrutiny.

Still, the regulatory rollback adds optimism to the broader crypto market’s outlook—especially as ETF applications for Ethereum, Solana, and other top assets are under active review.

Why This Matters for the Crypto Market

This rollback of Gensler-era rules is being seen as a major turning point for the U.S. crypto ecosystem:

Key Implications:

Improved Access to Financial Services: Banks and custodians may feel less regulatory risk in working with crypto clients, improving liquidity and stability for exchanges and funds.
DeFi Development in the U.S.: By eliminating Rule 3b-16, the legal threat hanging over DeFi builders has been lifted, potentially reinvigorating U.S.-based innovation.
Regulatory Clarity Over Enforcement: Firms will now have clearer expectations instead of navigating lawsuits and backdoor regulation.
ETF Acceleration: With less restrictive rules, crypto ETFs beyond Bitcoin may have a clearer path toward approval.

Analyst Reactions: Turning a Corner

Analysts and legal experts are cautiously optimistic, noting that while the withdrawal of hostile rules is a positive sign, the next round of rulemaking and enforcement strategy will determine whether this momentum continues.

“This is a significant course correction,” said Sheila Warren, CEO of the Crypto Council for Innovation. “But now the SEC must show it can develop a regulatory framework that supports innovation while protecting investors.”

Conclusion: Crypto’s New Regulatory Era Begins

The SEC’s decision to scrap Gensler-era rules represents one of the most important regulatory shifts in U.S. crypto history. With the controversial Custody Rule and Rule 3b-16 officially off the table, the crypto sector may finally gain room to breathe—and build.

As industry leaders prepare for a new era of proactive engagement and balanced oversight, all eyes are now on the SEC’s next moves, including how it handles crypto ETFs, securities classifications, and DeFi regulation in the years ahead.