The US financial regulator, which has had a war of tactics since the collapse of crypto exchange FTX, is suing industry players big and small.
But industry attorneys, tired of playing defence, are planning a counteroffensive.
Amanda Tuminelli, the chief legal officer of advocacy group DeFi Education Fund, plans to marshal other crypto advocacy groups and businesses to strike first and take legal action that could, theoretically, force the Feds to provide the'regulatory clarification' the industry has long craved.
options include challenging the way federal agencies make rules under the Administrative Procedure Act, an arcane but important law that allows the public to have their say on fine print.
Other moves include challenging the rules themselves after they're finalised, petitioning regulators to make rules favourable to crypto and filing so-called pre-enforcement challenges, Tuminelli said.
Tuminelli is not alone. The lawyer said she has discussed the strategy with the Blockchain Association, the industry's prime lobbying group in Washington, and other attorneys.
'We've been thinking about it for a while,' said Marisa Coppel, senior counsel at the Blockchain Association.
But Coppel said the crypto legal community has been hamstened by a recent string of court victories.
In July, Ripple won the US SEC by deciding that programmatic sales of the XRP token used on its platform were not securities transactions.
The following month, Grayscale won a unanimous ruling from a three-judge appeals court that found that the SEC erred in denying the asset manager's application to convert its listed Bitcoin trust into an exchange-traded fund.
The head of Ripple Labs, Brad Garlinghouse, urged his industry colleagues to take the government to court instead of agreeing to pay a penalty.
'(SEC Chair) Gary Gensler goes out and says that they are winning these cases', Mr Gensler said last week at a crypto conference. Despite the losses, Mr. Gensler has remained consistent in his argument that securities laws already on the books apply to the vast majority of digital assets.
Gensler testified in the House Financial Services Committee on Wednesday.
The industry wants to be different. It has implored lawmakers and the SEC to at least provide regulatory clarification for a novel asset class.
The big hope is that Congress will enact legislation that recognizes the special properties of blockchain-based assets and treats them separately from stocks and bonds.
A Democrat from New York and one of the most crypto-friendly lawmakers in Washington, Representative Ritchie Torres, a Democrat, assailed the SEC last week at a conference organised by blockchain research firm Messari.
A well-chosen lawsuit could force the government's hand, Tuminelli said. She needs to find a plaintiff first, she said.
She added that she is re doing it.
In a pre-enforcement challenge, the plaintiff contends that a regulatory background of suing similar firms gives it reason to believe it, too, will find itself in that regulatory crosshairs.
Similarly, petitioning the government for rule-making has angered some in the industry. Tuminelli, too, thinks it's worth a shot.
A legal counterweight may be the industry's best option at the moment, given the state's gridlock. But it's a costly, time-consuming process.
In practical terms, Ripple's victory in court means little to other firms.
The SEC is preparing an appeal of the ruling in the Ripple case, potentially setting the stage for another courtroom clash in the second quarter of 2024.
Tuminelli said she's still searching for crypto businesses that may serve as ideal plaintiffs. If Tuminelli found ideal plaintiffs, recruit them to a legal crusade, it is by no means a given. Tuminelli said the firm would have to be willing to draw the ire of the Feds.
A strategy to counter Gensler's crackdown is developing in the crypto legal community, buoyed by the courtroom triumphs of the summer. Aleks@dlnews.com The author would like to speak to you.