After the collapse of several crypto operators in the year 2022, a phalanx administrative agencies descended on the industry and declared it “rife” with fraud, scams and money laundering. The Securities and Exchange Commission and Commodity Futures Trading Commission brought together more than 200 enforcement action against participants of the crypto industry over the period of 2023.

The agencies, like an autoimmune reaction that cannot distinguish between good and bad, filed lawsuits both against those who skirted the laws as well as those who tried to comply with them. The agencies’ dragnet of enforcement caught a distributor who created JPEGs with animated cats, an autonomous decentralized organization, and a number of celebrities, including Kim Kardashian and Paul Pierce.

This article is part of CoinDesk’s “Crypto-2024” prediction package.

The regulators found that almost every participant in the industry was violating Depression-era laws which were not applicable to crypto. rejected requests for more comprehensive rulemaking. As the year comes to a close, the SEC has two black eyed from losing in federal court against Ripple, Grayscale, and other crypto exchanges. The CFTC is also more interested in settling with crypto exchanges rather than pursuing protracted litigation.

Next year, as I predicted in December last year, may be the year of regulatory compromises. It is unlikely that Congress will pass comprehensive crypto legislation during an election year, but regulators may opt to pare back a failing regulation-by-enforcement strategy and instead work collaboratively with industry to develop an interim regulatory framework through a combination of notice and comment rulemaking, and no-action relief.

The SEC, and other crypto regulators hopefuls, will have to compromise next year. Grayscale’s challenge against the SEC for rejecting its spot bitcoin ETF application resulted a unanimous D.C. Circuit Court of Appeals panel held the SEC’s action was “arbitrary and capricious.” The U.S. Court of Appeals, Third Circuit required the SEC respond to a request for rulemaking.

This backlash against overreaching administrative agencies extends far beyond the crypto industry. The Fifth Circuit Court of Appeals ruled in a lawsuit filed by the Chamber of Commerce, against the SEC.

The SEC is also defending itself against a suit filed by six industry groups who claim that the SEC exceeded its authority when it adopted new regulations for private fund advisers. The Fifth Circuit Court of Appeals recently told that the CFTC abused its discretion in withdrawing a “no-action” letter without any supporting reasons. A CFTC registered exchange is suing for arbitrarily rejecting their bid to list new contract types on its platform.

The SEC is likely to continue limiting and forcing the hand of regulators in the coming year. In response to the Grayscale decision the SEC recently authorized an ether futures ETF, and it’s reported the agency will approve spot bitcoin ETF by January.

Read more: Marc Hochstein, What Markets are Forecasting for Cryptocurrency in 2024

The SEC rejected the petition after the U.S. Court of Appeals, Third Circuit, mandated the SEC to respond to a industry petition. The Chair Gensler public remarks are a far cry compared to his previous statements which stated that “probably” only “a few” cryptoassets “may not” be securities. “Of course, . . . Not all crypto assets are necessarily sold and offered as securities. . . “I look forward to working closely with crypto projects and with intermediaries who wish to adhere to the law,” he says now.

The SEC has not proposed a comprehensive framework for crypto. However, it has made a few new regulations that will be finalized next year and would have an impact on crypto industry participants. If adopted as is, SEC proposals to redefine to include “communication protocols systems” in the definition of “exchanges” and to require investment advisers custody cryptocurrency assets with a certified custodian will likely result in similar challenges under administrative law. Many industry groups and crypto companies claim that SEC violated “major question doctrine” when it proposed these regulations, without Congressional approval. SEC may make concessions if they realize that the regulations could be delayed by legal disputes and then dropped in the event of an administration change.

The crypto industry will have a reason to extend their interactions with agency personnel beyond the ones compelled by subpoenas next year. Industry participants are looking to provide a wide range of products to meet the growing institutional demand for cryptocurrency. This will require a collaboration with regulators.

The SEC has jurisdiction over many tokenized real-world assets (RWAs), and staff will need to be on board. Exchanges that want to offer crypto futures and margin trading in the U.S. need CFTC approval. And prudentially-regulated financial institutions that seek to offer stablecoins and other crypto products will not be able to do so without the authorization of their supervising regulators.

In the new year, we can expect that the crypto industry will warm up (even if it is just a little) to regulators. This will be a positive outcome for everyone.

Benjamin Schiller is the editor.