The U.S. Securities and Exchange Commission (SEC) has been actively cracking down on the crypto industry this year, but its current power may also pose a vulnerability in the future.
In addition to the ongoing legal battles with companies like Coinbase and Ripple, Gary Gensler and the SEC have issued Wells notices to Uniswap, Consensys, and Robinhood for suspected violations. The focus of the potential lawsuits is on the wide range of cryptocurrency services provided by these firms, with a particular emphasis on Ethereum (ETH), the second-largest blockchain asset.
There is much uncertainty surrounding the SEC’s classification of Ethereum and its digital currency Ether. The SEC Chairman has consistently argued that cryptocurrencies are subject to federal laws, using the Howey Test as justification. However, this stance was challenged in court during the SEC’s prolonged dispute with Ripple, indicating a potential shift in the regulatory landscape that could impact Ethereum’s status as a commodity.
Critics of Gensler and the SEC have long condemned their approach of “regulation by enforcement” in the crypto space. Companies like Coinbase have taken legal action against the commission, filing petitions for rulemaking in federal court. The absence of a comprehensive regulatory framework for digital assets in the U.S. has allowed the SEC to pursue enforcement actions aggressively, but this could change if Congress intervenes.
In 2022, two bipartisan bills were introduced that could alter the oversight of cryptocurrencies away from the SEC. The Digital Commodities Consumer Protection Act (DCCPA) proposes transferring regulatory authority over digital assets to the Commodity Futures Trading Commission (CFTC). If enacted, the DCCPA could offer a reprieve for Ethereum, especially as the CFTC Chairman has stated that Bitcoin (BTC) and Ether are commodities.
The Responsible Financial Innovation Act (RFIA) is another piece of legislation that could bring clarity to the oversight of digital assets by regulatory agencies. Additionally, provisions in the Digital Trading Clarity Act and Financial Innovation and Technology for the 21st Century Act from 2023 may help to address regulatory gaps in the crypto industry.
Overall, the SEC’s recent actions have drawn criticism, with the Digital Chamber expressing concerns over the Wells notice issued to Robinhood Crypto. However, with potential legislative changes on the horizon, the regulatory landscape for cryptocurrencies in the U.S. could be in for a significant transformation.