The 1929 stock market crash drove Congress to introduce the first national securities laws, just as the collapse of the “dot-com” bubble led to the Sarbanes-Oxley Act. However, today’s regulatory response to massive cryptocurrency market events remains less proactive and more piecemeal. The Securities and Exchange Commission (SEC) has recently begun bringing actions against digital assets, alleging that they are securities subject to regulation. In just the first two months of 2023, the SEC levied hefty fines against Kraken, Terraform Labs, and Nexo, and has since filed lawsuits against both Coinbase and Binance.US.
Some critics argue that the SEC’s approach of individual enforcement actions brings more confusion than clarity to crypto regulation, and that there’s an alternative: issuing regulations through the Administrative Procedure Act’s notice-and-comment procedures. This would entail a federal agency analyzing a new sector’s practices, proposed rules, and public feedback resulting in appropriately tailored regulations—an approach used for autonomous vehicle standards, for example.
The issue is further complicated by the jurisdictional battles among regulators. While the SEC seeks to classify cryptocurrencies as securities, the Commodities and Futures Trading Commission (CFTC) considers them commodities. This has led to what some might describe as a “regulation by enforcement” approach, as the CFTC also files actions against organizations such as Binance for unauthorized derivative marketplace practices.
Despite various legislative proposals like the Securities Clarity Act and the Token Taxonomy Act, it is unlikely Congress will pass any cryptocurrency-related legislation before the deeply divided 2024 elections. In the meantime, the SEC could follow a notice-and-comment rule-making process to avoid the consequence of the courts possibly dismissing its enforcement actions.
To sum up, the main contention around cryptocurrency regulation is the lack of a comprehensive regulatory regime in the face of jurisdictional clashes between the SEC and the CFTC. A better approach would involve the SEC following APA-approved procedures, just as other agencies have done in the past. Not only would this create more predictability and transparency in the regulation of digital assets, but it would also encourage a more collaborative approach, leading to a stronger regulatory framework for the industry.
Source: Blockworks
