Crypto firms strike SEC, Washington over lack of clarity on rules

Crypto companies are frustrated with the US government for the lack of clear rules for the industry and the Securities and Exchange Commission for its aggressive actions against digital currency firms, according to several executives who spoke to CNBC.

Unlike other countries, the United States has yet to come up with a comprehensive framework or set of regulations that would allow cryptocurrency and blockchain firms to operate without fear of being targeted by regulators.

Meanwhile, since the collapse of crypto exchange FTX last year, the US SEC has stepped up enforcement actions against companies.

On Wednesday, the SEC sent exchange Coinbase a Wells notice, warning the company that it had identified potential violations of US securities law. The SEC also unveiled fraud and unregistered securities charges against crypto-founder Justin Sun and celebrities who backed the digital coins he pushed.

The SEC is currently in legal disputes with a number of other companies, including Ripple, Genesis and Gemini.

“It feels uncooperative,” a senior crypto executive at the Paris Blockchain Week event told CNBC, speaking on condition of anonymity because of the sensitive nature of the matter. “It’s very frustrating for players who have been doing it right all along.”

Joe Lubin, CEO of ConsenSys and co-founder of Ethereum, told CNBC on Thursday that he believed the ecosystem was “generally frustrated.”

“I think we’re kind of continuing to see the SEC play this game to punish people who are still surviving. And it’s a little bit, you know, kind of a frustrating thing to observe,” Nicolas Cary, president of Blockchain. com, CNBC told Thursday.

Much of what the SEC has done involves applying existing regulations to the crypto industry, which were formed decades after the Howey test – one of the key tests to determine whether something is a security or not.

Many in the crypto industry feel that this is not the right way to go.

“Where I think you have less successful regulatory regimes is when you try to analyze crypto through the lens of traditional finance. You say ‘well, is it kind of like a security? Is it a commodity?” … No, it’s kind of none of those things. It’s crypto,” Oliver Lynch, CEO of Bittrex Global, told CNBC on Wednesday.

The SEC was not immediately available for comment when contacted by CNBC.

CNBC spoke to a number of executives on the ground at Paris Blockchain Week, one of the most prominent crypto conferences in Europe, and one request from executives to US regulators was the need for clarity.

“We would like a little more clarity in regulation,” Silvio Micali, founder of blockchain company Algorand, told CNBC on Wednesday.

However, some have expressed some sympathy for the SEC, suggesting that the watchdog is only operating within existing rules and that it is up to the US government to change them.

“What are they going to do? If all you get is a hammer, the whole world looks like a nail,” said Linch of Bittrex Global.

Blockchain.com’s Cary said the SEC is “trying to do its job to protect consumers.”

SEC Chairman Gary Gensler raised many of these points in an opinion piece he wrote in The Hill this month, suggesting the regulator has been clear on the rules.

“I find it unconvincing that there is a lack of clarity in the securities laws,” Gensler said. “Some crypto companies may say that the laws are unclear rather than admit that their platforms do not have adequate investor protection.”

He outlined cases where crypto firms fall under existing securities laws, such as when a company offers lending products.

Gensler also said “cryptobrokers aren’t exactly lining up to register with the SEC and comply with the laws passed by Congress.”

The SEC chief said enforcement actions are “another tool” in the regulator’s toolbox to root out “noncompliance.”

Executives have warned that the lack of clear regulation in the US could cause it to fall behind other countries and jurisdictions.

“It’s incumbent, I think, on Congress to actually create a legal regulatory framework that properly regulates crypto, because … crypto is here to stay,” Linch said.

Governments around the world are considering how to regulate crypto. Places like Switzerland and Dubai have marketed themselves as crypto-friendly destinations with favorable regulation.

Meanwhile, the EU is scheduled this year to introduce Markets in Crypto-Assets, or MiCA, regulation, designed to bring some rules in and around digital currency companies.

Asked by CNBC whether the US is in danger of falling behind other jurisdictions in the crypto economy, Monica Long, president of Ripple, said: “We think so.”

“Europe is really emerging as a leader in setting really clear rules and regulations that allow crypto companies and also traditional finance to embrace crypto,” Long said.

The Ripple president referred to MiCA, a law that required the consent of all 27 nations that make up the European Union, calling it “remarkable when the United States has one government and they can’t get their act together.”