Regulatory clarity has been slow in coming for crypto.
Back in July of 2022, Coinbase filed a petition with the SEC asking for clear guidance. “Please show us the path to regulation” is a good paraphrase of what it said. But the SEC refused to respond. Coinbase’s requests were met with silence.
Then earlier this year, in April, the SEC had the audacity to inform Coinbase they were the target for an investigation of selling unregulated securities, followed by a formal enforcement action on June 6th.
Coinbase responded by going on the offensive, taking the matter straight to court and asking a federal judge to force a response to their original petition. From the Coinbase perspective, even a denial of the petition would be a victory, because then they could move forward with a lawsuit on the grounds of the denial (which, of course, is the reason why the SEC never responded at all).
But despite all the legal wrangling, clarity is slowly emerging. Every SEC enforcement action requires them to clarify the nature of their complaint — and provide what the crypto exchanges have a wanted all along.
It’s a mind-numbing display of irony. The SEC, and its Chair Gary Gensler, seems hellbent on only offering clarity at the tip of a spear.
But, as the SEC is learning, that spear can be pointed in both directions…
Crypto is forcing the field by getting to court first, forcing the SEC to be more transparent. Just as above, even if crypto exchanges lose the case, they’ve won the regulatory pathway they’ve requested all along. Losing a case and registering the specific securities listed in the case is an acceptable outcome for Coinbase.
Binance.US (the 100% US-based arm of Binance, which is a separate entity from the global company) has also been able to make positive progress. The SEC filed an enforcement action against them on June 5th, which included a threat to freeze their funds. But they’ve responded with a host of lawsuits of their own. And each one has forced the SEC to further delineate what they consider a security.
The SEC settled with Binance.US, no funds were frozen, and the two agreed on a list of securities that were then registered. Once again, a regulatory pathway is emerging, even though it’s been a hard-won journey through the docket of the Federal courts.
But the offensive is working.
It doesn’t seem like it’s going to arrive any other way.
When I attended Consensus 2023, the giant crypto conference in Austin, Texas, I sat in the front row of an interview with CFTC (US Commodity Futures Trading Commission) Commissioner Christy Goldsmith Romero. Unlike Gensler, she’s considered the “friendly” regulator toward crypto. But she, too, refused to provide any clarity from the stage. She was asked point blank if cryptos are commodities and / or securities.
Her answer (I’m paraphrasing a bit): “All cryptos are commodities, I can tell you that. And if you want to know if they’re securities as well, you’d have to ask the SEC.”
Lawmakers currently show no interest in leaving their embattled political sidelines to offer legislative solutions. So the future of crypto will be worked out by the SEC, the CFTC, and the big crypto exchanges, with federal judges as referees.
So far the plan is working. While there are no doubt additional showdowns that’ll come to bear at some point (and lawmakers won’t remain passive forever, as Big Bank lobbyists will eventually stir them to action with the promise of money — as they always do) the good news is that many hurdles have been cleared for a strong 2024-2025.
Binance (the global entity) continues to fight it out with the SEC, but with each blow, regardless of who throws it, investors gain a way forward.
And new, more powerful combatants have entered the field: last week BlackRock, the world’s largest asset manager, filed an application for a new pure Bitcoin ETF. Fidelity and Schwab are preparing something as well. Gensler’s games won’t work against these established players.
Crypto is taking the field — and crypto investors, myself included, fully intend on getting first pick of the spoils.
