The blockchain industry, the crypto community, and U.S. policymakers accused the Securities and Exchange Commission (SEC) of exceeding its authority and called Congress to develop crypto market regulations.
Representatives of the Blockchain Association filed an amicus brief alleging the SEC’s misconduct in litigation against Coinbase over insider trading. They claim that the SEC harms the cryptocurrency industry by using a strategy of “regulation by enforcement.”
Kristin Smith, CEO of the Blockchain Association, argues that the SEC’s actions illustrate the agency’s disorderly and detrimental approach to the digital asset industry. In her view, the regulator’s actions confuse investors and market participants and have the potential to set a judicial precedent that would make regulation by enforcement legal in the United States. “This case is the latest attempt by the SEC to improperly expand its own authority, drawing in third-party actors who have no ability to engage or refute the SEC’s claims,” Smith argues.
Recall that the SEC accused former Coinbase Product Manager Ishan Wahi, his brother Nikhil Wahi, and his partner Sameer Ramani of insider trading while calling nine tokens on Coinbase securities. The latter is what angered the Blockchain Association reps, as a court ruling in favor of the SEC in the current proceeding could potentially jeopardize the entire U.S. blockchain industry.
The SEC’s role in regulating the crypto market was also discussed by U.S. lawmakers at a hearing before the Senate Banking Committee on February 14. The hearing focused on the crypto market collapse and the role of the SEC and its Chairman Gary Gensler in preventing similar incidents in the future.
Tim Scott, Senator from South Carolina, accused the SEC Chairman of inaction, arguing that the regulator had “failed to take any meaningful preemptive action” and hadn’t provided “the slightest bit of guidance.” He said Gary Gensler should appear before Congress and explain what tools the SEC had to protect investors after the bankruptcies of FTX, Terra, Voyager, BlockFi, and Celsius. Scott also stated that if such tools were available, Gensler had to explain why the agency didn’t use them and was “asleep at the wheel.” If the SEC has no real means to regulate the crypto market, however, it should be excluded from the SEC’s purview.
The lack of a “consistent federal regulatory framework” on crypto was also stressed at the hearing by Linda Jeng, Crypto Council for Innovation Chief Global Regulatory Officer and General Counsel. She said the SEC was unable to protect investors and wasn’t even trying to initiate “any formal rulemaking process to update securities laws,” which were outdated and couldn’t account for the unique attributes of digital assets.
According to Jake Chervinsky, Chief Policy Officer at the Blockchain Association, despite the SEC’s attempts to control the crypto market through enforcement actions, the regulator is “bound by legal reality.” Indeed, the U.S. Congress will eventually be forced to pass legal rules to regulate the fast-growing digital asset market.
Neither the Securities and Exchange Commission nor the Commodity Futures Trading Commission “has the authority to comprehensively regulate crypto,” Chervinsky said. They can only be authorized by the U.S. Congress, where the ideological gap between House Republicans and Senate Democrats is too big to make a clear decision about crypto regulation. Thus, Chervinsky believes that in the absence of legislative solutions, the SEC is trying to succeed on its own.
Recently, the Securities and Exchange Commission forced the cryptocurrency exchange Kraken to suspend its staking program and pay a fine. The SEC also plans to hold Paxos Trust Co. accountable. In turn, the regulator’s attacks on the BUSD’s issuer put a strain on Binance.
