As America’s Securities and Exchange Commission (SEC) continues its “love-hate” relationship with the cryptospace, the rest of the world continues to try and figure out regulatory angles to keep activities in check.
That said, Chairman Gary Gensler’s “singularity-driven” approach hasn’t helped either.
This has led to so much chaos in the industry that the last hope of this “regulatory dictatorship” will determine its fate (the courts).
From Coinbase, to Ripple Labs Binance.us and others, the SEC has continued to stretch itself out with action after action with no end in sight.
Our team of exerts gave us teasers on what to expect following the SEC’s actions.
Here’s what they had to say.
Steve Larsen, Founder of DeFi Steward and Digital Assets Contributor to Forbes
1. The SEC lawsuit against Coinbase will be dismissed
The SEC has waged an effective anti-crypto campaign in the hearts and minds of the political class but has struggled when facts and the law are introduced into the equation. The SEC’s lack of consistency, transparency, and honesty are on full display in their lawsuit against Coinbase. The SEC struggled in the Ripple case when a judge was asked to rule on the issue as a matter of law, and the Coinbase suit is even more egregious. Look for Coinbase to use facts, logic, and common sense to have the SEC’s ridiculous lawsuit tossed before it even begins.
2. Blackrock receives approval for their Bitcoin ETF…and then files for an Ethereum ETF
The Wall Street insiders at Blackrock don’t waste their time on ETF applications they think will be denied by the SEC. Larry Fink of Blackrock must know something we don’t. Expect their ETF application to be approved by the end of the year.
It’s likely that as Blackrock is rolling out their ETF and all other applicants are playing catchup, they will strike again by introducing an Ether ETF, specifically Staked Ether. Being the largest asset manager in the world has its privileges, and Blackrock is likely to be the first one out of the gate with ETF funds for the two largest cryptocurrencies in the world.
3. Crypto regulation will pass the House but stall in the Senate
Both chambers of Congress have introduced crypto legislation, but only one takes it seriously. While various committees in the House of Representatives have substantive conversations about the future of digital assets, aging Senators continue to hide behind “bad actors” and other mythical characters referenced in the The Crypto-Asset National Security Enhancement Act of 2023.
Markus Levin, Co-founder at XYO
“Despite Ripple’s landmark win against the SEC coupled with the growing popularity of cryptocurrency, an air of uncertainty still shrouds DeFi’s path. Surely this isn’t the last time our industry will butt heads with the SEC, but in order for cryptocurrency to prosper and establish itself as a cornerstone in financial services, there need to be clear regulatory guidelines in place to remain optimistic about its future – crypto isn’t just an idea anymore, there’s serious momentum to celebrate.
Currently, the majority of crypto tokens exist in a legal gray zone because they do not fit into the traditional financial system. This has caused several coins to become isolated and demerrited by the SEC – does it make sense for crypto to be subject to irrelevant and obsolete regulations that don’t adhere to them? It’s why the ruling between Ripple and Terraform Labs is so initially polarizing and befuddling. This doesn’t mean regulation is a poor choice for the crypto ecosystem or a signal of end times – it’s quite the opposite. There is so much energy and enthusiasm rushing in and out of the space, and something needs to be done to prevent bad actors from pursuing their ill intentions on the market. All that to say, players little and small need to embrace regulation but push for regulation that makes sense.”
Kadan Stadelman, CTO at Komodo
“It’s clear that the U.S. lacks a comprehensive crypto regulatory strategy. The SEC continues to fight against the crypto industry on multiple fronts, whether it’s the case against Ripple, Binance, and Coinbase. What’s next? Will the SEC possibly look at PayPal after the U.S. Federal Reserve released a new process for stablecoin issuance?
The lack of clear policy and the varying nature of each case makes it extremely difficult to predict which individuals or companies the SEC will go after next. Rather than bringing up charges against the most powerful players that are seemingly trying their best to comply, I think the SEC should concentrate on cases — like Celsius and FTX — that have overwhelming evidence of fraud and mismanagement of user funds. I don’t see the SEC adopting a concentrated strategy anytime soon, though.”
Justin Daniels, Attorney at Baker Donelson
“The Binance, FTX and Coinbase cases all need to wind their way through the court so companies and counsel can start to connect the dots on what is or is not a security. This is especially true with Coinbase where up till the litigation, the SEC has seemed to be Lucy with the football being compliance and Coinbase being Charlie Brown. Now the court will step in and not allow the football to be swept away.
The split in the Southern District Court of New York on whether a token sold through an exchange is a security will need to be resolved. Judge Rakoff rejected the analysis that the sale through the exchange did not meet the efforts of others prong of Howey.
The outcome of DAO’s being treated as general partnerships. That ruling consistently will chill usage of DAO’s if owners are going to be personally at risk.”
Danielle Dudai, Attorney at Hall Booth Smith, P.C.
“What I think is going to happen next is that there will be significant legislative changes, which are already in the works. The SEC has been successful in their enforcement actions against LBRY, Inc., Kik Interactive, and Telegram, but the ruling in Ripple Labs is not binding on their other pending actions, and already one judge has taken steps to distance himself from that ruling. Coinbase just filed a motion for judgment on the pleadings in their action, which, if decided in their favor, would be a massive win in this space, emphasizing the need for legislative clarity.
In the wake of the demise of well-known crypto firms like Three Arrows Capital, Voyager Digital and FTX, the United States desperately needs a framework where all parties can move forward. The EU has passed MiCA, the Markets in Crypto Act, which imposes a number of requirements on crypto platforms, token issuers, and token traders. MiCA was passed in response to the need for transparency of platforms and their transactions including improving and enforcing money laundering protocols and identity verification. EU based crypto companies will need to be licensed in accordance with the terms of MiCA.
In the United States, there is currently no similar framework. While the United States has many regulations governing money transmitters and money service businesses, separate and apart from the regulations relating to trading or offering securities, there is a constant struggle between the CFTC or the SEC, without a clear path through. These regulations, as they currently stand, provide some opportunity for crypto companies to operate but still expose these companies to risk of suit because of the lack of a framework, e.g., Coinbase.
Last month, U.S. House Republicans introduced a digital assets oversight bill known as the Financial Innovation and Technology for the 21st Century Act. Some of the key provisions include giving the CFTC primary jurisdiction over most digital assets, but giving the SEC jurisdiction over assets that are securities. It also creates a new division: the Office of Financial Innovation and Technology, which will exist within the Treasury. There are requirements to register with the appropriate regulators but also provisions to protect consumers. Importantly, this legislation clarifies that the existence of an investment contract alone does not make a digital token a security and the co-sponsors of the bill expressly stated that about 70% of all crypto tokens should be classified as commodities rather than securities.
The concern of course is that the government will try and over-regulate, and eliminate decentralized assets, in favor of centralized products. It is an unpopular opinion, but we do need regulatory clarity to minimize risk of unnecessary litigation. Adoption of crypto will continue to be stunted so long as the framework which exists only allows few to enter the market while still exposed to significant risk, and effectively penalizes the use of crypto by taxing every transaction.”