The SEC's regulation by enforcement approach to crypto seems designed not to faithfully apply the law but rather to chill the industry and drive crypto founders out of the United States through fear and intimidation.
Good thing we're not a group that scares easily! 🦄
Here are five reasons to stand strong in the face of the SEC’s threats:
1) The SEC doesn't make the law. Congress makes the law and courts interpret it. The SEC only gets to decide its own views and enforcement strategy, but it has no better claim to understanding the law than anyone else. When the SEC goes to court, it's treated just like any other plaintiff or defendant. Its views are not binding, it can be wrong, and it can be beat.
2) Many courts are rejecting the SEC's approach. The securities laws of the 1930s clearly weren't designed to cover blockchain-based digital assets, so the SEC has had to twist the law beyond recognition in order to justify expanding its reach beyond financial instruments that are actually meant to be securities. Thankfully, federal judges aren’t easily fooled. The SEC has taken big losses on a number of legal issues recently in the Ripple, Grayscale, and Coinbase cases, not to mention its thrashing in the Debt Box case for its “pattern of organizational bad faith” and "gross abuse of power."
3) The industry is going on offense. For years, the industry tried to collaborate with the SEC, only to learn that its invitation to "come in and talk" was hollow. Then the industry acted like sitting ducks, letting the SEC choose what issues to fight and where. Now, the industry is executing an offensive strategy of impact litigation through organizations like @fund_defi, taking the fight to the SEC on issues that we're confident we can win. There's good reason to be optimistic about this strategy, particularly given the judiciary's recent focus on reining in administrative overreach.
4) New SEC leadership could change everything. The SEC is notoriously chair-run: the policy views and political aims of the person at the top dictate how the entire agency operates. It's hard to imagine the SEC changing its mind about crypto while Chair Gensler is in charge, but his term expires in 2026, and he could be out sooner than that. It's an election year, and it's hard to know what the world might look like in twelve months. Imagine the SEC under Chair Hester Peirce, for example. Even a second Biden term could bring fresh leadership influenced less by the anti-crypto army and more by the pro-innovation wing of the Democratic party. One way or another, this too shall pass.
5) The industry keeps innovating. Regulatory strategy in crypto has seen substantial iteration and development since the SEC first took an interest in the space in 2016. I'm lucky to work with many of the best founders (and their lawyers) day in and day out, and they're all taking regulatory compliance seriously and coming up with new and better ways to stay on the right side of the law. If we all do our jobs right, the SEC's claim to jurisdiction over crypto will only become more tenuous and unjustified as time goes on.
Unfortunately, it looks like a long road ahead before we get clarity on whether and how the securities laws apply to digital assets. Hopefully Congress will pass new legislation that actually makes sense for crypto some day. In lieu of that, we’re stuck fighting this out in the courts.
No matter how long it takes, or how much it costs, or how many painful weeks like this we have to endure, in the end we will prevail. Until then, keep calm and carry on building. đź’Ş