- Grayscale CEO shares concern over the crypto regulations.
- Former SEC official warns that the regulatory crackdown might never end.
Michael Sonnenshein, CEO of Grayscale Investments, shared negative views about the current crypto regulation scenario in the U.S. He especially cited the recent approach of the United States Securities and Exchange Commission (SEC) applied where the financial watchdog is taking a one-by-one approach in regulating the crypto industry.
Crypto Regulation and the United States; Awaiting Amalgamation
During a recent interview with Fox Business, Sonnenshein shared his concerns for the future of the crypto industry in the United States. Data suggests that after the black swan event of FTX-saga, the regulatory actions by the SEC against crypto entities jumped by 183%.
In June 2023, the financial watchdog sued Coinbase and the world’s biggest crypto exchange sending ripples across the industry. Speaking of ripples, the court finally released a partial decision on the infamous Ripple vs. SEC case, saying the token XRP is not a security. However, the agency has not yet appealed against the case, but this reveals the enforcement stance of the regulatory agency.
“If every crypto issue needs to go to a court of law, then as a country, we are squashing the innovation taking place here.” – Sonnenshein.
Experts argue that most cases were around the classification of digital assets – securities and commodities. SEC classifies them as securities based on Howey Test, but the ”sufficiently decentralized” criteria seem ambiguous. Sonnenshein demanded clear classification standards and regulatory guidelines for stablecoins.
It should be considered that Sonnenshein remains optimistic about the upcoming Responsible Financial Innovation Act (RFIA), which presents a scenario where the SEC will work alongside Commodities Futures Trading Commission (CFTC) to oversee crypto regulations. Also, the bill should fill the regulatory void in the United States.
Former SEC Official Warns that Ongoing Onslaught Will Continue
John Reed Stark, the former SEC head of internet enforcement, said that the regulatory onslaught carried on by the financial watchdog would never end. Referring to the point where the SEC went against crypto exchange Bittrex. The charges were similar to that of Coinbase, one of the world’s biggest crypto exchanges.
In these cases, the SEC argued that the crypto entities, call themselves exchanges, brokers, and market-makers, are playing against the rules. The entities on the receiving end of the SEC baton used these powerful nomenclatures that imply trust oversight, consumer protection, etc. The results could be dangerous for the market if they are allowed to continue.
Stark explained why the SEC’s action against the crypto industry might never end. He says, “Congress enacted the Securities and Exchange Act of 1934 to prevent police investment schemes orchestrated by large financial conglomerates of any ilk.” Further adding to the argument of never-ending regulatory action, he says that the agency cannot allow a marketplace to operate without proper registration and oversight.
The Trialogue Approach to Regulate Crypto
Further explaining the reason, he says the SEC has a threefold mission ahead. They need to protect investors and maintain a fair, orderly, and efficient marketplace, all while facilitating a scenario for capital formation. It’s like stabilizing a tripod for a long-distance high-resolution shot. A slight deviation in any leg could hamper the final image.
John Reed Stark and Mark Cuban had a Twitter (now X) feud in early July 2023. Billionaire Mark Cuban said the agency took the wrong route to regulate crypto in the United States. Referring to the FTX-saga, he said that the Japanese investor suffered the least. Because the regulations to keep investor and business fund separate is present in Japan.
Stark emphasized the need for crypto entities to register with the SEC. He also argued that the current SEC rules provide a greater protection sphere than Japan. Suppose the entities register with the financial watchdog. In that case, the proposed rules, like Rule 3b-16 of the Securities Exchange Act, Regulation ATS. And Regulation SCI should suffice the need for regulatory clarity.
