Two tech focused venture capital firms say they are concerned about the Securities and Exchange Commission’s alleged overreach in the crypto industry.

Andreessen Horowitz, also known as a16z, and Paradigm filed a joint amicus brief on Friday supporting crypto exchange Coinbase, which was charged in June for allegedly operating as an unregistered exchange, broker and clearing agency.

“The SEC’s regulatory overreach, coupled with the unpredictability and arbitrariness of its actions, threatens the development of blockchain technology in the United States,” the firms said in their brief.

The SEC sued Coinbase, as well as other exchanges, over the last few months for allegedly not registering with the agency. SEC Chair Gary Gensler has said repeatedly that firms need to register with the agency, citing concerns over fraud and manipulation, though Paradigm and a16z argue that that is not possible, creating tensions between the regulator and the industry.

The SEC’s approach to crypto could reach beyond to “an endless array of commonly sold assets including fine art, classic cars and vintage wines, the firms warned.

Major questions doctrine brought up again

A new regulatory framework is needed for crypto, but the firms said that should come from Congress instead. Lawmakers in the House Financial Services Committee and House Agriculture Committee advanced legislation last month to regulate crypto, though it’s not clear whether it will gain traction in the Senate.

In Coinbase’s rebuttal to the SEC, the exchange argued that the major questions doctrine, which has been cited a few times in the crypto industry, applied to its case against the SEC. The doctrine says that if an agency wants to decide on an issue that has major national significance, it has to be supported by clear congressional authorization.

The major questions doctrine has two parts — one focused on whether the subject has a major impact on the nation’s economy or on the public, and the second is whether a federal agency has explicit authority to implement new regulations.

Paradigm and a16z said the crypto industry does have economic significance, citing that crypto traded at volumes as high as $500 billion per day at its peak. The SEC's approach "threatens to decimate the industry by thwarting blockchains’ ability to operate at all," the firms said in the brief.

"The regulatory action here thus has deep economic significance,” the firms said.