Regulatory clarity remains elusive

The United States Securities and Exchange Commission (SEC) has continued its crackdown on the cryptocurrency industry this year, but it may also face a significant weakness in the coming months. Alongside its ongoing litigation against firms like Coinbase and Ripple, the SEC, led by Gary Gensler, has issued Wells notices against Uniswap, Consensys, and Robinhood for alleged violations. The lawsuit focuses on the broad range of cryptocurrency services offered by these firms, with a particular emphasis on Ethereum (ETH), the second-largest blockchain asset.

There has been much confusion surrounding the SEC’s classification of Ethereum and its native currency, Ether. Chairman Gensler has consistently argued that cryptocurrencies are subject to federal laws, using the Howey Test as evidence. However, this argument was discredited during the SEC’s lengthy legal battle with Ripple, the issuer of XRP. A technological change could potentially jeopardize Ethereum’s status as a commodity.

Critics of Gensler and the SEC, including crypto proponents and industry stakeholders, have long criticized their “regulation by enforcement” approach to overseeing the crypto market. Companies like Coinbase have even taken legal action against the commission, filing petitions in federal court to challenge its regulations. The absence of a comprehensive digital asset framework in the United States has allowed the SEC to pursue litigation extensively, but this could change if Congress takes action.

In 2022, two bipartisan pieces of legislation were introduced that could shift the oversight of crypto away from the SEC. The Digital Commodities Consumer Protection Act (DCCPA) would grant regulatory authority over digital assets to the Commodity Futures Trading Commission (CFTC). If passed, this act would provide relief for Ethereum, as CFTC Chairman Rostin Behnam has publicly stated that Bitcoin (BTC) and Ether are commodities.

The Responsible Financial Innovation Act (RFIA) could also bring much-needed clarity to the regulatory oversight of digital assets by various agencies. Additionally, the Digital Trading Clarity Act and Financial Innovation and Technology for the 21st Century Act from 2023 may help fill regulatory gaps, according to De La Cruz’s opinion.

The Digital Chamber has criticized the SEC for issuing a Wells notice to Robinhood Crypto, adding to the growing scrutiny faced by the commission.