Why are crypto enthusiasts turning on the SEC?

The Securities and Exchange Commission (SEC) has become the face of crypto opposition, encouraging a wave of protests from crypto enthusiasts. In the first quarter of 2023 alone, the regulatory body imposed restrictive guidelines on several crypto organizations.

However, the SEC ran into major problems and drew criticism in what appears to be a reprieve for the crypto community. What has the SEC done and why are crypto enthusiasts unhappy?

Examples of SEC actions against crypto organizations

Although the SEC is a regulatory authority over cryptocurrencies, the agency seems to have started a war against crypto. Here’s some of the action in Q1, 2023.

1. Opposite Binance–Voyager Agreement

In February 2023, the SEC opposed Voyager Digital’s request to sell its platform to Binance, claiming that Voyager was offering unregistered securities. The agency also raised concerns about the security of assets and plans for asset transfers on Binance.US. This occurred during Voyager Digital’s bankruptcy proceedings (the details of which are available on Stretto), where it detailed its restructuring plan.

However, the federal judge criticized the SEC’s approach and timing, stating that the customers who had lost their money were the priority. After raising questions regarding the SEC’s processes and the competition between regulatory authorities, the judge approved the deal.

2. Rejection of Grayscale’s Bitcoin ETF proposal

Although Grayscale filed suit against the SEC in 2022, the hearing finally began in March 2023. Grayscale filed the suit after the SEC rejected its request for a Bitcoin ETF approval, even though the agency approved a Bitcoin Futures ETF in 2021. The basis of the case is that a Bitcoin Futures The ETF is not that different from a Bitcoin Spot ETF.

During the first hearing, the presiding judge criticized the SEC’s rejection of Grayscale’s approval after previously approving a similar product. Still, the SEC argued that the data required to determine whether the Bitcoin ETF’s monitoring agreements could predict fraud and manipulation was lacking.

3. Continued stance against Ripple

In February 2023, SEC Chairman Gary Gensler announced that most crypto assets are securities, revealing the agency’s bias against XRP, Ripple’s token.

As a result of Gensler’s statements, Stuart Alderoty, the chief legal officer of Ripple, requested that Gensler recuse himself from voting on crypto enforcement matters.

Meanwhile, the lawsuit between Ripple and the SEC continues after the judge struck out some of the SEC’s expert witnesses.

4. War Against Crypto Staking

The SEC alleged that Kraken, through its crypto-staking platform, facilitated the sale and purchase of unregistered securities. The SEC’s allegations ultimately led to the shutdown of Kraken’s on-chain staking service for US investors. And Gensler followed up with a warning to other crypto betting platforms, prompting a response from Coinbase CEO Brian Armstrong.

Coinbase, through Armstrong and its legal director, Paul Grewal, emphasizes that stake is not a security under the Howey test or the US Securities Act, contrary to the SEC’s claims.

In Gary Gensler’s speech, released on March 2, 2023, the SEC chairman suggested that crypto trading and lending platforms do not qualify as crypto custodians, regardless of whether they claim to qualify. This speech addressed the proposed safeguards rule, created to expand the depository rules. Gensler’s comments, which addressed the intersection of the rule and crypto, indicated his bias against cryptocurrencies.

Criticism of the SEC’s actions

Despite the SEC’s proclaimed intentions to protect investors in the highly volatile crypto market, the agency has been heavily criticized by crypto participants and enthusiasts. It has been accused of proceeding without clarifying the reasons and providing laws to support the decisions.

In addition, the SEC is known for focusing on enforcement rather than sorting out rules and regulatory responsibilities. For example, in the case of the former Coinbase employee who pleaded guilty to insider trading, the SEC quickly mounted a securities fraud case.

Also, the SEC appears to be a lone wolf rather than cooperating with other regulatory bodies. A well-coordinated federal response to the lack of regulation in the crypto space is expected; However, there appears to be a turf war between agencies, including the SEC and the Commodity Futures Trading Commission, that want to lead the fast-growing sector.

The SEC and Crypto must find common ground

Although crypto enthusiasts are turning against the SEC, they also recognize the need for rules and regulations in the crypto industry. Bills such as the proof-of-reserves bills have been well received as a solution to the problems in the room.

Crypto enthusiasts expect meaningful preemptive actions from the SEC to safeguard crypto investors rather than its regulation-by-enforcement. Regulatory clarity is essential, and if the SEC helps provide that clarity, the US can become a global leader in blockchain and crypto adoption and regulation.