SEC Drops Lawsuit Against Kraken, Marking a Shift in Crypto Regulation

On March 3, 2025, the U.S. Securities and Exchange Commission (SEC) formally dropped its case against crypto exchange Kraken. Kraken’s legal team celebrated the win by donating to the new leadership of the White House.

The case was initially filed in November of 2023 against Kraken, charging the exchange with “Operating an unregistered trading platform,” a clear breach of security regulations.

But now that the case has been dismissed, Kraken considers this to be a huge win for the crypto space. The firm had contended that the suit was politically motivated and added unwarranted volatility to the market. Notably, the dismissal came without any admission of fault, financial sanction, or necessary changes to the business of Kraken.

Kraken’s Legal Defense Against SEC’s Claims

Kraken’s legal team criticized the SEC for overstepping its bounds by taking legal action without following proper regulations. The exchange initially requested to dismiss the case, but the judge at that time rejected the motion, causing the case to be prolonged until now. 

Even though the case is active, the SEC still chose to drop the case, which is a change in the regulators’ mood towards crypto companies. This comes after the SEC’s recent efforts to settle cases or investigations against other leading crypto platforms, such as Coinbase, MetaMask, OpenSea, Gemini, and Robinhood.

This sudden dismissal after the new policy announcement on regulations gave relief to many crypto platforms. Hence, many investors believe this change will lift the crypto market to new heights. 

Criticism of the SEC’s ‘Regulation by Enforcement’ Approach

Industry players assert that the agency’s strategy—dubbed “regulation by enforcement”—has deterred innovation and investment. Kraken accused the SEC’s move of not being for the protection of investors but rather of fueling regulatory uncertainty in already nascent markets. With the suit now settled, Kraken hopes to see a move towards more tangible, formalized policies that will provide stability to crypto companies.

Growing Momentum for Crypto Legislation

This follows broader developments in the regulation of crypto in the U.S. Lawmakers recently filed a stablecoin bill aimed at increasing the penetration of the digital assets market by the U.S. dollar. There is also increased speculation over the filing of a broader bill regulating cryptocurrencies, one that will reach further than the scope of the FIT21 bill.

A Turning Point in Crypto Regulation?

Kraken’s courtroom win is just one piece of a larger trend of the SEC backing away from its more aggressive court fights with large crypto firms. During the tenure of SEC Chair Gary Gensler, the agency had been waging aggressive enforcement actions, alleging that firms such as Kraken were handling customer coins recklessly and not registering appropriately. But with regulatory strategies changing, positive sentiment has grown in the crypto space for a more open, cooperative, and less turbulent regulatory climate in the U.S. has returned.