The SEC has a complicated relationship with cryptocurrency companies. With the recent step down by the SEC Director of Enforcement, the future of institutional friendliness towards the crypto industry continues to be uncertain.
Alex Oh steps down
This past week, news broke of the recently appointed Enforcement Chief of the U.S. Securities and Exchange Commission (SEC) resignation. Alex Oh stepped down from her position after only five days on the job.
The move followed questions surrounding a potential conflict of interest from Oh’s previous occupation as a Wall Street defense attorney.
The case in question involves Oh’s defense of Exxon Mobil Corp (XOM.N) in a lawsuit in which the SEC is investigating Exxon Mobil over asset valuation issues.
Currently, Melissa Hodgeman, who had the role from January to April, is filling the position.
SEC officials waver on crypto
Alex Oh was one of the first major hires of the new SEC Chairman Gary Gensler. President Biden nominated Gensler for the position at the start of 2021. He was then approved and appointed by the Senate this past month.
While the SEC as a whole has a tumultuous relationship with the crypto and blockchain industry, Gensler’s own responses to the space tend to lean more crypto-savvy.
The chairman’s background is decorated with experience and knowledge of cryptocurrencies and blockchain technology. This includes his course at MIT on the subject. Overall this is a promising scenario for those in the crypto space who are otherwise hesitant of the SEC and its understanding of this emerging economic landscape.
However, his public comments on crypto can be seen as somewhat mercurial. Gensler has praised it as a “catalyst for change” and also testified before Congress saying bitcoin is a “modern form of gold.”.
However, he has also remarked that crypto teems with scams, hacks, and various forms of manipulation.
Nonetheless, Gensler as SEC Chairman is a step in a crypto forward direction compared to his predecessor Jay Clayton. With only a few days left in office in December 2020, Clayton sued Ripple and began the infamous battle between the company and the regulator.
SEC vs Crypto
This lawsuit between the SEC and Ripple is the go-to example when it comes to regulatory disputes.
The case with Ripple unfolded when the SEC accused the company of allegedly operating an unregistered securities offering. This then brought up the issue of classification. The company and SEC began fighting over whether the native token XRP is a cryptocurrency versus a security.
Ripple argues that it has created a cryptocurrency, in the likes of ethereum (ETH). However, the SEC poses the counterargument that Ripple is a security in which investors can benefit from market cultivation for the asset.
The Ripple dispute is a perfect example of the grey area that some cryptocurrencies and digital assets tend to fall. It’s the same grey area with legislators struggling to figure out how to handle regulations when it comes to crypto.
The SEC recently expressed its intention to file a response to Ripple’s Individual Motions to Dismiss. This development comes a few days after the SEC asked the judge to deny Ripple’s request to stop the watchdog from contacting foreign regulatory bodies.
Aside from the Ripple Labs dispute, the SEC is carrying out other crypto-related cases. One being Gensler’s move to postpone the decision on VanEck’s Bitcoin ETF proposal. Cases pending for other companies mostly relate to fraud.
Unclear crypto positions in the SEC
Cryptocurrencies are taking the traditional financial markets by storm. Though as these spaces continue to overlap, this could mean more red tape for crypto developers and investors.
In his confirmation hearing, Gensler called cryptocurrency a priority. However, when asked whether emerging currencies will be subject to securities rules, he said it would depend on the circumstances of the offering. These kinds of vague statements continue to make the nature of crypto regulations unclear.
More recently, in a house hearing related to the GameStop short squeeze incident, he called for more regulation to protect crypto assets.
The biggest champion for cryptocurrencies in the SEC is Commissioner Hester Peirce, also dubbed as Crypto Mom. She has laid out a “safe harbor” plan.
This would allow digital currencies to sidestep most securities regulations in the span of a three-year development period, in which startups could foster their ecosystem and invite investors to trade peer-to-peer.
Regulations aren’t inherently bad. Future SEC regulations would open doors for big developments. These could include more liquidity of digital assets or more promising investment options to those unfamiliar with the industry.
However, the increased red tape could also bring major setbacks. These would affect companies, exchanges, and individuals invested in crypto anonymity.
For now, both insiders and regulators are still unsure as to what is to come, and how exactly the future of crypto regulations will play out.