The SEC’s Miscalculation in its War on Crypto
Today’s dismissal of Coinbase’s plea for regulatory guidance by the Security and Exchange Commission (SEC) marks a significant turning point in the relationship between the SEC and the crypto industry. Coinbase, the industry’s leading crypto exchange, had requested specific guidelines from the SEC regarding the crypto marketplace. However, the SEC dismissed the request, labeling the request as extraordinary and deeming crypto as a minor fraction of the $120 trillion U.S. capital markets unworthy of special consideration. This attitude towards crypto regulation by the SEC could potentially bear significant consequences for both the SEC and the crypto industry.
The SEC’s Miscalculation
Dismissing the need for specific guidance in the dynamically expanding crypto industry, the SEC has showcased a lack of well-thought-out policies for the sector — despite numerous instances suggesting the urgency for such guidance (CoinDesk, 2023). It is probable that the SEC’s case against Coinbase will now be dismissed on the basis of their unwilling to provide a pathway to compliance as being “capricious and arbitrary.” This response from the SEC can be viewed as a significant miscalculation, undermining the credibility and integrity of the SEC as a regulatory body and neglecting its responsibility to protect investors and ensure fair and transparent markets.
The SEC’s argument that there are sufficient rules and guidelines in place for the industry is misguided, given the unique nature of cryptocurrencies and the speed at which they evolve. This requires specific, tailored regulations that address the intricacies and risks associated with this emerging market. Without clear rules and guidelines, investors are left vulnerable to fraud, manipulation, and other illicit activities.
Potential Outcomes and Unintended Consequences
The SEC’s refusal to provide regulatory oversight to the crypto industry combined with the coming legal judgement indicating that the SEC is not acting in good faith to do so, could and likely will incite Congress to intervene and establish a dedicated regulatory body for crypto (MSN, 2023). As a result, the SEC would lose its authority over the industry. However, this could turn out to be a positive development for the crypto and blockchain industry, as it would finally acquire the regulatory oversight it has been seeking.
By failing to provide regulatory guidance, the SEC is effectively turning a blind eye to the potential risks and abuses in the crypto industry — examples of which abound under the current regulatory regime. This hinders the growth and development of the industry, creating uncertainty for legitimate businesses in the crypto space.
Conclusion
In conclusion, the SEC’s dismissal of Coinbase’s plea for regulatory guidance in the crypto industry is a significant miscalculation. The dismissal greatly increases the chance that Coinbase will prevail in its case against the SEC. The losing of which would indicate the SEC’s loss of authority to regulate crypto and blockchain related issues. This outcome will likely prompt Congress to repurpose a portion of the SEC’s budget in order to create a dedicated regulatory body for crypto as Congress seeks to take proactive measures create clear and comprehensive regulations for the crypto industry which both protect investors and supports the industry’s continued growth and development (Reuters, 2023).
References
- U.S. SEC. (2023). Statement on the Denial of a Rulemaking Petition Submitted on Behalf of Coinbase. Retrieved from https://www.sec.gov/news/statement/gensler-coinbase-petition-121523
- Reuters (2023, October 3). US SEC asks judge to deny Coinbase motion to dismiss its lawsuit. Retrieved from https://www.reuters.com/legal/us-sec-asks-judge-deny-coinbase-motion-dismiss-its-lawsuit-filing-2023-10-03/
- CoinDesk (2023, August 4). Crypto Exchange Coinbase Moves to Dismiss SEC Lawsuit. Retrieved from https://www.coindesk.com/policy/2023/08/04/coinbase-moves-to-dismiss-sec-lawsuit-alleging-crypto-falls-out-of-regulators-oversight/
- msn (2023). SEC rejects Coinbase’s crypto rulemaking petition. Retrieved from https://www.msn.com/en-us/money/markets/sec-rejects-coinbase-s-crypto-rulemaking-petition/ar-AA1lzicE
- Reuters (2023, May 16). SEC in Coinbase case defends crypto rulemaking. Retrieved from https://www.reuters.com/legal/transactional/column-sec-coinbase-case-defends-crypto-rulemaking-enforcement-2023-05-16/
Author: John Sarson, CEO Sarson Funds, Inc.
Disclosures: Not investment advice. It should be assumed that Sarson Funds or its affiliated managers hold positions in all projects that are discussed. It is not possible to invest in any project directly through Sarson Funds, Inc. or its affiliated managers. Any investment product offered by managers affiliated with Sarson Funds should be assumed to be only available to Accredited Investors and subject to the individual terms and conditions of that offering including but not limited to those eligibility requirements associated with U.S. Securities Regulation D, section 506c. Talk with your financial advisor before making any investment decisions or have them contact Sarson Funds directly at [email protected]
