As the five voting members of the Securities and Exchange Commission sat before lawmakers on Capitol Hill in September, House Financial Services Committee Chairman Patrick McHenry (R-N.C.) said: the pressure The head of the agency about the supposed lack of regulatory clarity regarding cryptocurrencies.

“The laws are clear, and the Supreme Court wrote them,” SEC Chairman Gary Gensler began to say before McHenry interrupted him, turning to Gensler’s fellow GOP appointee, SEC Commissioner Hester Peirce, to ask about the agency’s position on cryptocurrency regulation. . once again.

“We took a legally imprecise view to mask the lack of regulatory clarity,” Pierce replied, Gensler a few feet away from him. “It's always helpful for Congress to have a say, but there are certainly some guidelines we could provide in this area that we chose not to do.”

The exchange took minutes, but highlighted years-long tension over the SEC's regulatory approach to cryptocurrencies. It also highlighted the partisan divide within the agency over whether broad swaths of the cryptocurrency industry fall under its jurisdiction, requiring digital asset companies to adhere to the agency's decades-old securities-related rules.

Gensler, who once said that "Everything except Bitcoin" falls under the agency's purview, and has served as a political cudgel this year, even as President-elect Donald Trump has been winning favor with the cryptocurrency industry. However, Wall Street's top cop has turned to the agency's enforcement campaign, issuing tickets to cryptocurrency companies. Allegedly violating its rules while notifying several other companies.

Gensler, appointed by President Biden to lead the SEC, indicated last month that his term had ended. he He pointed out He will leave when Trump begins his second term on January 20, 2025.

Trump, implementing one of his campaigns related to cryptocurrencies Promisesappointed former SEC Commissioner Paul Atkins to replace Gensler.

“I would expect Paul Atkins to take a very different approach,” said Stephanie Avakian, a partner at WilmerHale, who previously served as director of the SEC's enforcement division. Decryption. “He is experienced, practical and well-known.”

Cryptocurrency advocates may be excited at the prospect of Atkins' leadership, but it remains to be seen where the candidate can take existing lawsuits against cryptocurrency companies like Binance, Coinbase, and Ripple Labs.

Anthony Two Skinny, partner at Seward & Kessel, said: Decryption The SEC could face reputational damage if it quickly abandons high-profile cases after moving forward with them Spend resources.

“The SEC is more like a supertanker than a racing boat,” Tu Siqin said. “You don't expect Atkins to become president and come out two days later and say we're going to drop all these cases. “The staff worked hard on these cases, came to a conclusion about the law, and ultimately ended up convincing higher-ups that a lawsuit should be filed.”

Capitol Hill

When Gensler was nominated to lead the SEC in 2021, industry participants were cautiously optimistic. However, Gensler's experience teaching a class on blockchain at MIT did not lead to clearer "rules of the road," as Some were hoping.

By asserting that existing laws were sufficient to regulate digital assets, he appeared as an opponent of the industry. Meanwhile, a stringent series of enforcement actions related to cryptocurrencies has raised concerns among advocates that the agency's approach has been overly zealous.

Reflecting on his tenure as SEC chairman in November, Gensler defended the agency's focus on enhancing compliance with securities laws in the cryptocurrency market. After making comparisons withWild West“Before, the Sheriff adopted his agency’s approach to protecting investors.

“This is an area where significant damage has been done to investors over the years,” Gensler said He said. “Furthermore, apart from speculative investment and potential use for illicit activities, the vast majority of crypto assets have yet to demonstrate sustainable use cases.”

On the same day, 18 states foot sued the Securities and Exchange Commission, alleging that the regulatory agency's enforcement gambit violated the law. Accusations of regulatory overreach, brought by Republican attorneys general and the DeFi Education Fund, highlighted a sense of political unease that had seized on the president-elect months earlier.

“I will fire Gary Gensler on day one,” Trump pledged at a Bitcoin conference in July. “The day I take the oath of office, Joe Biden and Kamala Harris’ anti-crypto crusade will end.”

Gensler's leadership was examined time and once again by Republican lawmakers on Capitol Hill, but the feeling that existing laws were good enough met with bipartisan opposition this year. There are also 71 Democrats in the House of Representatives I voted for Following the cryptocurrency market structure bill in May along with Republicans, they indicated that the status quo needed some form of comprehensive reform.

Both chambers of Congress also approved a bill that would have been repealed Saab 121SEC guidance requiring banks to recognize digital assets as liabilities on their balance sheets. After President Biden vetoed the bill, House members failed to pass it. However, 21 Democrats Showed opposition Biden's veto followed, so there was bipartisan support there as well.

Crypto industry Unprecedented political spending Efforts in 2024 likely contributed to lawmakers' performance. Democratic presidential candidate Kamala Harris later distanced herself from the SEC's approach, Invitation for a regulatory framework as Election Day approached, but by then, it was too late.

As Vice President Harris rises to the top of the Democratic ticket, Rep. Wiley Nickel (D-N.C.) previously said Decryption There are indications that the presidential candidate will take “Balanced approach"To crypto. Mark Cuban threw his hat in the ring as a potential successor to Gensler, but the billionaire's ambitions to lead the agency ultimately failed.

'Not great for entrepreneurs'

Although the SEC faced numerous setbacks in court, the Commission had a banner year in terms of the amount of cash brought in by its enforcement actions. Meanwhile, the agency pressed ahead with high-profile lawsuits, ignoring the political tension Gensler faced.

In fiscal year 2024, the SEC insures $8.2 billion In sanctions across 583 enforcement actions affecting US capital markets. Of that amount, $4.5 billion came from a lawsuit against Terraform Labs and its founder Do Kwon. She was Found responsible On civil fraud charges related to $40 billion It collapses From UST and LUNA in 2022.

The lawsuit was a major victory for the Securities and Exchange Commission, as... A federal judge decided That Kwon and Terraform Labs offered LUNA and UST to investors as securities. However, the SEC faced a major setback in the Southern District of New York, where the case was filed.

after find That XRP, a token managed by Ripple Labs, was not “necessarily a security on its face,” a federal judge ordered Ripple to pay. $125 million In fines for XRP transactions that violate the law. Securities and Exchange Commission later resume ruling, but sought $2 billion in civil penalties after the case was filed in 2020, before Gensler took over the agency.

“It's a good thing the SEC got a bloody nose,” Tu Siqin said.

However, the SEC was able to stick to the lawsuits filed against Binance and Coinbase. Last year, the regulator claimed that both companies violated its rules, by allegedly operating as unregistered exchanges, broker-dealers, and clearing agencies, among others. Other accusations.

In March, a federal judge Found The arguments that Coinbase was offering investors unregistered securities were plausible, leading to most of the company's motions to dismiss being denied. In June, a federal judge ruled that the SEC's case against Binance could be so He continueswhile charges related to the cryptocurrency exchange's flagship product Simple Earn and some token sales were rejected.

Those lawsuits, along with one Against cryptocurrency exchange Kraken, it is still ongoing. The legal costs associated with enforcement actions related to cryptocurrencies are increasing, according to the Blockchain Association, an advocacy group that estimated the number at at least $400 million, using self-reported data from its member companies.

“While this creates a lot of work for lawyers, it's not great for entrepreneurs,” said Christine Smith, the company's CEO. Decryption. “In terms of whether their projects comply with U.S. securities laws, they have to read between the lines of the various court opinions and briefs filed by the SEC.”

Some of the lawsuits filed last year have come back to impact the SEC, namely the SEC's case against DEBT Box, a cryptocurrency mining company. In August 2023, SEC lawyers obtained From one side A restraining order against the company, freezing DEBT Box's assets before it can say otherwise.

In May, the case was dismissed as a federal judge ordered the SEC to pay $1.8 million for DEBT Box's legal fees. Utah District Court Judge Robert Shelby found that the regulator made "false and misleading statements" in the restraining order investigation. A week later, the SEC closed Its regional office brought the case, citing “significant attrition.”

Implementation threats

Minutes after Gensler announced his resignation in November, a federal judge in Texas dealt another blow to the agency. by Expand the definition From the "dealer", the SEC was going to force DeFi projects to register as stock exchanges and brokers. But the court found that action illegal, and ordered the SEC to rescind the amendments in question.

While the SEC has focused on cryptocurrency exchanges and digital asset issuers under Gensler's leadership, the Commission's scope has expanded this year in terms of enforcement threats. version Wales noticesthe Securities and Exchange Commission has warned companies of the possibility of litigation emerging in areas that have not been addressed before, such as decentralized finance (Uniswap Laboratories), NFT (Open sea), and games (Unchangeable).

Additionally, the commission has issued enforcement warnings to companies such as the trading app Robinhood, to examine Its own cryptocurrency offerings after the company tried it “ScoreIts services with the agency, which Gensler had previously urged digital asset companies to pursue.

“This is not the way Americans expect our government to work,” Dan Gallagher, Robinhood's legal chief and former SEC commissioner, later testified before Congress. “Rather than issuing rules to provide the regulatory certainty the industry craves, the SEC has instead targeted individual companies, including Robinhood, with regulation by enforcement.”

Ultimately, Gensler's leadership had a "tremendous impact" on the cryptocurrency industry, said Katherine Snow, general counsel at Thesis, a venture capital firm. Decryption. To either force companies to cancel projects or move offshore, the United States will have to accelerate the pace of competition as crypto regulatory progress is made internationally, she said.

However, Snow saw a notable flaw in Gensler's scheduled departure. Over the past several years, legal minds across the industry have united in fighting what was seen as an existential threat.

“Because we had this common enemy, everyone was able to rally behind each other,” Snow said. “It will be very interesting to see what approaches the various trade associations take over the coming months and years, as we approach the new Securities and Exchange Commission.”

Modified by Sebastian Sinclair