Crypto vs SEC: Analyzing Regulatory Battles and Trends in 2023
Dive into the ever-changing landscape of the SEC’s relationship with the crypto industry in 2023. Uncover the regulatory challenges and shifting trends that are shaping the future of the crypto world.
In recent months, the U.S. Securities and Exchange Commission (SEC) has been making frequent appearances in the news and crypto media. Most of the headlines revolve around SEC lawsuits against crypto projects or noteworthy statements made by Gary Gensler. However, this hasn’t always been the case.
From 2018 to 2021, the SEC’s focus was primarily on major ICOs like TON or KIK. The regulator’s attention was more of an exception than the norm in the free U.S. crypto market. But everything changed in April 2021 when Gary Gensler took over as the Chairman of the Commission, replacing the crypto-friendly Jay Clayton. Gensler’s arrival marked the beginning of a new approach to crypto at the SEC, which was later referred to as a “crusade against the crypto market” by Coinbase’s CEO.
The first alarm bells rang in September 2021 when Gensler made a statement advocating for crypto market regulation. At first, it seemed like a friendly offer to companies facing regulatory uncertainty. However, since the start of 2022, the SEC has consistently made concerning declarations about cryptocurrencies, intensifying the SEC vs. crypto narrative:
-The SEC claims the authority to regulate decentralized finance (defi) platforms.
-All proof-of-stake (PoS) tokens are considered securities.
-The jurisdiction of blockchain should be determined based on the location of validators.
-Cryptocurrency projects are under intense scrutiny by the SEC.
The situation escalated further after the collapse of FTX, which exposed flaws in existing regulations and inadequate investor protection. By 2023, the statements made by the SEC became more radical:
-There is no need for special legislation to regulate cryptocurrencies.
-All cryptocurrencies except Bitcoin (BTC) are securities.
-Crypto markets fail to meet regulatory requirements.
-The SEC plans to focus on the defi sector.
-The U.S. only needs a few digital assets.
While there have been some more favorable opinions towards cryptocurrencies, such as opposition to the Howey test’s application to cryptocurrencies, the overall direction of the SEC’s policies and stance has been seen as unfriendly towards the crypto industry.
SEC vs. Ripple
In December 2020, the SEC filed a lawsuit against Ripple, alleging that the company conducted illegal trading of securities with its XRP tokens. Nearly three years later, in July of this year, Judge Analisa Torres ruled in favor of Ripple, stating that XRP cannot be classified as a security. However, the judge noted that institutional sales of tokens could still be considered transactions involving unregistered securities. Towards the end of October, the SEC decided to withdraw from further involvement in the Ripple case trial, leading to the dismissal of all charges against the company’s management.
SEC vs. Bittrex
On April 17, 2023, the SEC filed a complaint against the Bittrex cryptocurrency platform, alleging that it operated as an unregistered broker, exchange, and clearing agency, offering services to U.S. investors that might be classified as securities. The SEC also claimed that Bittrex and its former CEO, William Shihara, advised issuers to remove potentially problematic statements from social media and other public channels. As part of the settlement, Bittrex and Shihara agreed to permanently abide by certain securities laws and pay compensatory damages, a fine, and a civil penalty, totaling $24 million.
SEC vs. Genesis & Gemini
In January, the SEC initiated a lawsuit against crypto broker Genesis Global Capital and the Gemini exchange, alleging violations of the Securities Act. The court documents claimed that the companies offered and sold unregistered securities through the Gemini Earn program. Genesis announced the complete cessation of trading services in September, citing voluntary and business-related reasons.
SEC vs. Binance
In early June, the SEC sued the Binance crypto exchange and CEO Changpeng Zhao, alleging multiple violations of U.S. laws. The violations included access to American clients’ funds, commingling of funds, breaching securities laws, and misleading investors. The SEC accused Binance of concealing information and obstructing the investigation. Binance chose to prolong the legal proceedings by withholding requested documents, citing the SEC’s requirements as excessively burdensome. However, in November, Binance agreed to a settlement, which involved Zhao resigning, paying a personal fine, and the company paying a large fine.
SEC vs. Coinbase
Following Binance, the SEC accused Coinbase of operating as an unregistered broker. The SEC claimed that Coinbase made billions of dollars from illegally conducting purchases and sales of cryptocurrency assets. The lawsuit did not hinder Coinbase’s development, as the company’s shares reached their highest value since May 2022 in November.
SEC vs. Kraken
In November, the SEC sued Kraken’s parent companies for failing to register as a trading platform. The SEC also raised concerns about Kraken’s business practices and record-keeping. Kraken had already settled charges brought by the SEC regarding an “unregistered” staking program in February 2023.
SEC vs. Hex
In July, the SEC sued HEX, PulseChain, and PulseX founder Richard Heart for alleged sales of unregistered securities. The SEC claimed that Heart raised over $1 billion by selling tokens from three projects and promoted them as a path to great wealth for investors. The SEC also accused Heart of fraud, including embezzling money from PulseChain investors.
SEC vs. Terraform
In December, the SEC asked the court to clarify the legal status of crypto assets provided by Terraform Labs and determine whether they are considered unregistered securities. The SEC argued that certain cryptocurrencies meet the criteria of securities due to their investment nature and the expected profit from the defendants’ efforts.
Looking ahead, 2024 is expected to be a year of active market regulation as the SEC continues to enforce actions and litigate against numerous crypto companies. The SEC’s approach to crypto regulation in the United States is becoming more repressive, while other countries like Hong Kong, the UAE, and the EU are creating more favorable conditions for crypto development. The ongoing narrative of SEC vs. cryptocurrency is fueled by the SEC’s selective and inconsistent application of securities legislation.
