Crypto’s big win in court is just the beginning |
“Case dismissed,” tweeted the chief legal officer of cryptocurrency exchange Coinbase on Friday. “Two words that every defendant in every case yearns to hear.”
The decision by the Securities and Exchange Commission to drop its lawsuit against Coinbase heralds a new era for digital assets: After years of what critics decried as “regulation by enforcement,” lawmakers are finally poised to write some rules for the industry.
Joe Biden’s SEC chairman, Gary Gensler, brought 100-plus crypto-related actions during his tenure. Many were still wending their way through the courts on Inauguration Day, but the Coinbase lawsuit held special significance because of how it tested a basic theory about the blockchain’s biggest players: that nearly all cryptocurrency tokens are securities — financial instruments such as stocks and bonds — so the platforms on which they’re traded are operating illegally unless they register as securities exchanges.
Many in the crypto market worried that a win for this idea would mean they’d find themselves subject to rules that weren’t written for them — and that, they claim, are functionally impossible to follow. Indeed, the crypto community hated Gensler so much that at least one of its conferences the Darth Vader theme played when his face appeared on-screen. Last summer at a bitcoin event, Donald Trump made the promise, of dubious constitutionality, to fire the man on Day 1 — and the crowd not only whooped in approval but also leaped to its feet.
“Whoa! I didn’t know he was that unpopular,” remarked Trump. “Let me say it again.”
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Gensler’s likely successor, the crypto-friendly Paul Atkins, is waiting in a logjam of nominations to secure his expected Senate confirmation. The agency’s interim leader, Mark Uyeda, has enough pro-blockchain bona fides to assuage any anxiety the industry might harbor.
Better yet for the blockchainers, the commissioner in charge of the SEC’s new task force to right the alleged wrongs of the past four years, Hester Peirce, has been so outspoken about her fondness for cryptocurrency that she has earned the nickname “crypto mom.” Compare that to Gensler: The national regulator spending most of their time on the industry has gone in a matter of months from a Sith Lord to a den mother.
Already, Peirce is taking care of her brood. Besides speedily rescinding a much-hated Biden executive order that made it harder for banks to hold crypto assets, the reinvented SEC has reassigned its chief litigator in charge of the most sensitive cases. And it has replaced its crypto enforcement team entirely in favor of a unit with the more general mandate of targeting “cyber-related misconduct.”
The abandoned Coinbase lawsuit is part of this peacemaking pattern. And there may be more to come: The SEC has requested a stay in its case against the Binance exchange, putting it on pause for now — even though the alleged behavior, from falsely inflating trading volume to funneling customer funds to its CEO’s other companies, suggests shadier conduct than anything with which Coinbase has been charged.
And if the SEC decides it wants to hang on to some of the holdover lawsuits from the previous administration? Well, the president, who said in a recent speech that he has “totally” ended Biden’s “war on … crypto,” could always try to shut any efforts down. The DOGE team is also expected to take its talents to the SEC soon. Elon Musk himself has already declared the agency a “totally broken organization.”
The blockchain lobby, back in the Gensler days, argued that a responsible agency would actually write some rules for crypto companies to follow. Today, it’s looking for rules both from the SEC and from Congress that clarify whether and when a digital asset is a security — which, if the industry gets its way, will be far less often than the old SEC insisted. This will be the era of regulation by legislation that crypto companies have pined for. And, indeed, it’s reasonable for any industry to want to know what standards it’s being held to before an enforcer does the holding. Yet there’s cause for caution.
Friday’s sigh of relief for crypto was speedily followed by reason for the industry to still its breath all over again. Bybit, another exchange, just lost $1.5 billion in Ether stolen by hackers — sending coins’ valuations tumbling worldwide. Bybit is based in Dubai and doesn’t offer services to customers in the United States. But the gentler age for crypto that’s dawning here today will encourage more Americans to trade in these tokens — and enable more exchanges to help them do it. The sudden and steady weakening of the SEC invites the question: What good are new rules if no one is making sure they’re being followed?