What's the SEC's Policy on Crypto?

Breaking Down Gary Gensler's Crypto Policy And The SEC In 2022.

Entering the start of H2 2022 let’s do a little reflection with our Lord and savior Gary Gensler. Was he successful in putting the FUD in crypto or was it much of a nothing burger? Well despite the predictions of regulatory crackdowns in 2022, which would have been perfect timing before midterms, we haven’t seen much action.

Starting from the top let’s look at Biden. The Biden administration and their executive order process are still in motion. In H1, POTUS issued an executive order assigning various agencies to analyze and report on crypto’s benefits and risks to “Ensuring Responsible Development of Digital Assets.” In H2 these reports are due for analysis by the administration. With past market reports issued by the President like this, there never is any swift action taken so I am not expecting anything monumental to change here as we close out the year. The large concern at the time was if this EO might lead to extreme and rushed rule making and impose ridiculous restrictions. What has actually come of it is a clear given green light to all industries to actually take this industry seriously.

For Congress, the year is almost coming to an end. Final submission drafts and potential rulemakings for 2023 are being submitted for discussion. In H1 of this year, we saw the Lummis-Gillibrand amendment be proposed which is part of the 2023 potential rulemakings. We likely won’t see anything of substance in H2 2022 as this proposal is a strong candidate with bipartisan support. Most representatives and congressional workers are focused on the Midterms.

What is nice is seeing some actual unity from across the government. Most agencies are following President Biden’s lead in smart governance in this sector. The EO is setting that framework with the private sector to look at this technology with thoughtfulness, bringing this full circle to how only Congress can answer the questions we have all been asking since the start of cryptos regulatory era.

The question still lies… Has the SEC finally gotten the message? Unfortunately, I don’t think so.

Instead of entering into the latter half of the year with reasonable, responsible, and fair regulation, Gary Gensler has taken the low road and received a well-deserved lawsuit. The SEC’s hostile stance against crypto and especially Grayscale’s ETF conversion is seen to be unjustified to put it lightly. I expect this will get worse over the next year and more rash decision-making from Gary and the boys will soon come.

The SEC proposed two rules in H1 in a clear effort to capture a broad definition of “exchange” and “dealer” that would then include DeFi protocols and any market participant within that realm. Funny how that ridiculous proposal directly lines up with their investigation into Uniswap. This was met with an abundance of backlash from policymakers along with industry participants.

What is clear is that the SEC's proposed rules greatly exceed its statutory authority along with a clear violation of both the Administrative Procedures Act and the First Amendment. From the Supreme Court’s EPA decision we can surmise that regulatory agencies like the SEC attempting to redraw their own jurisdictional boundaries won’t fly.

But Gary… Gary is doubling down.

The SEC’s Spring 2022 Regulatory Agenda stands by the “exchange” rule being finalized in October of 2022 and the “dealer” rule in April of 2023. I expect this to be met with heavy litigation if these were to pass without any change. In May, the SEC announced it would double the size of its Crypto Assets and Cyber Unit. The cost of this expansion will need to be justified by an already skeptical audience of appropriators.

Nonetheless, I believe we will see some more ridiculous actions taken by the SEC. The fiscal year-end is September 30th, and this is usually the time when the SEC unleashes its dodgy enforcement actions to meet quota on performance and budget requests. Their actions make little to no sense and completely go against the President’s orders to understand and then legislate. In my eyes, I am seeing a clear unraveling leading to rogue actions that have zero backing in common sense and legal sense. To add, there is a storm issuing with Gary and his army. High-ranking officials are quitting, the union is in a war with Gary over anti-employee pay issues, and they're about to be embroiled in massive litigation in regard to their future impact on climate change proposal.

What is a decent highlight is two new commissioners have recently joined the SEC. Maybe some change will follow? We have the midterms in November that could drastically shift the political landscape in the U.S. which could have any number of effects on crypto. From what I see we have actual legislation that’s beginning to look favorable for this industry. I truly believe the last wall in this demolition is being propped up by our good friend Gary. I’m just waiting to see who will bring the wrecking ball.

Written by Theo White