The lawsuit was filed Thursday in the U.S. District Court for the Eastern District of Kentucky and asks a federal judge to block the SEC from taking legal action against crypto exchanges. The plaintiffs argue that the SEC’s “crypto policy” is “unlawful enforcement action” and violates the Administrative Procedures Act.

The lawsuit argues that the SEC’s claims of broad regulatory authority are unsustainable. The plaintiffs state that crypto assets are merely digital assets and cannot be considered investment contracts under federal securities laws.

In particular, the SEC’s enforcement actions against crypto exchanges are alleged to interfere with states’ rights to enforce regulations within their jurisdictions.

The lawsuit was filed as SEC Chairman Gary Gensler’s term was about to end. Gensler was appointed by the Biden administration, but if Donald Trump is re-elected as president in next year’s elections, a successor who is more friendly to the crypto industry is expected to take office.

The lawsuit criticizes Gensler’s tough stance on crypto regulations and calls for protecting states’ right to set their own financial regulations.

DeFi Education Fund CEO Miller Whitehouse-Levine emphasized that the case was filed against the SEC’s “excessive use of authority.”

“DeFi, and crypto in general, promises to make financial services and the digital economy more accessible, efficient, and consumer-focused. But the SEC is currently standing in the way of delivering on that promise,” Whitehouse-Levine said in a statement.

The case builds on previous Supreme Court decisions and invokes the “substantial questions doctrine,” which holds that federal agencies should not take legal action except on matters directly assigned to them by Congress.

However, other federal courts have rejected the application of this doctrine to SEC cases against crypto companies. Still, it is thought that the outcome of this case could set an important precedent for the crypto industry.

“This lawsuit aims to stop the federal government from reaching into the wallets of the people of Kentucky,” Kentucky Attorney General Russell Coleman said in a statement about the lawsuit.

“Kentuckians want access to crypto to protect their financial freedom and defend against hyperinflation,” said Coleman. Coleman claimed that the Biden-Harris administration is illegally cracking down on the crypto industry rather than allowing it to grow.

While the SEC declined to comment on the lawsuit, spokespeople emphasized efforts to uncover irregularities in crypto markets in cooperation with state regulators.

Earlier Thursday, Gensler noted that the SEC’s approach to crypto follows in the footsteps of his predecessor, Jay Clayton, who took office under Trump. “There have been significant investor losses in this area over the years,” Gensler said, adding that the vast majority of crypto assets have yet to prove sustainable uses.

The lawsuit aims to protect states’ right to set their own financial regulations by limiting the SEC’s influence over crypto regulations.

If the plaintiffs are successful, it could narrow the scope of federal regulation of crypto exchanges and allow states to act more independently on the issue.

In addition, it is considered as an opportunity for the crypto industry to grow faster and pave the way for innovative projects.

In the coming days, it is eagerly awaited whether a new SEC Chairman who will be appointed to replace Gensler in the event of a possible election victory by Trump will have a more friendly approach to the crypto industry.