Markets
Why the Securities and Exchange Commission lost its war on crypto
NEW YORK, NY – FEBRUARY 07: Dan Roberts, Brad Garlinghouse and Andy Serwer attend the Yahoo… [+] Finance All Markets Summit: Crypto in New York. (Photo by Eugene Gologursky/Getty Images for Yahoo Finance/Oath)
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From banning “non-compete” clauses to re-requiring “net neutrality” to hyperinflating taxpayer-funded infrastructure costs with extravagant giveaways to unions, the Biden administration has overseen A massive expansion of the regulatory state. But amid this regulatory incontinence, which sows uncertainty, suppresses innovation, and stunts investment and growth, there are encouraging signs that Congress, the courts, and American entrepreneurs are fed up with government discretion. executive.
Take, for example, the escapades of the Securities and Exchange Commission. Since taking office, Biden’s approach to cryptocurrencies and related technologies has been to delegate and defer to an SEC activist and its crusading chairman, Gary Gensler. Chairman Gensler describes the crypto industries as “full of peddlers, crooks, [and] scammers,” which, it seems, excuses him to propose and promulgate concrete, legally compliant rules that the industry must follow. Instead, Gensler views crypto companies as undeserving of such regulatory clarity, choosing to keep them off balance through a “regulation by application” – aggressively pursuing crypto companies for failure to comply with securities laws without ever articulating what “compliance” requires.
In the absence of clear legal pathways, digital asset companies have leveraged their innovations and expertise. friendlier shores. Governments in countries such as the United Kingdom, the European Union, Singapore and the United Arab Emirates have already established regulatory frameworks and their economies will certainly reap the benefits of the resulting financial and technological innovations.
Meanwhile, other companies have chosen to stay in the United States and figure out how to mobilize and deploy the resources needed to bring some sanity to the domestic regulatory environment. Indeed, the politics around this issue have begun to change. Last week, even political allies such as Senate Majority Leader Charles Schumer (D-NY) and former House Speaker Nancy Pelosi (D-CA) voted to rein in Gensler’s broad claims regulatory authority over digital assets.
On May 21, with the support of 12 Democrats, including Schumer, the Senate voted 60 to 38 to overturn Gensler’s controversial plan. Staff Accounting Bulletin No. 121 (SAB21) – an SEC guidance document that makes it very difficult for financial institutions to provide cryptocurrency custody services. Last October, the Government Accountability Office had already governed that Gensler circumvented the statutory rulemaking process with SAB21 by failing to notify Congress as required by the Congressional Review Act.
Then, on May 22, with the support of 70 Democrats, including Pelosi, the House passed by 279 votes to 136 the Financial Innovation and Technology for the 21st Century Actknown as FIT21, which remove all doubt that digital assets are commodities to be regulated by the Commodities Futures Trading Commission and not securities to be regulated by the SEC. This very issue had been brought to court in lawsuits filed by the SEC against Coinbase And Ripple Labs.
Last July, Judge Analisa Torres of the Southern District of New York governed that the XRP token, which Ripple uses in its cross-border payments product, is not a security when traded on public exchanges. Ripple CEO Brad Garlinghouse was also personally targeted by the SEC in the lawsuit, accused of “complicity” in what turned out to be legal sales of XRP. “I’ll be honest, it was a pretty dark time,” Garlinghouse recalled, before thousands of cheering supporters celebrating Ripple’s legal victory, from the night in December 2020 when he learned he was being sued for hundreds of millions of dollars
Shortly after Torres’ decision, the SEC abandoned his case against Garlinghouse, but the ordeal seemed to strengthen his resolve to take the fight well beyond the courtroom. THE victory It certainly contributed to the effort to pass FIT21 and raised Garlinghouse’s heroic profile among a grassroots army of crypto supporters, who have mobilized not only to fight the SEC, but also to influence the 2024 elections.
As recent court rulings and legislative developments have begun to bring greater regulatory clarity, the experience has brought Garlinghouse and other industry leaders together to recognize the issues and support the campaigns of candidates who believe in the technologies crypto and blockchain. Ripple is a major backer of Fairshake PAC, a political action committee that has brought together one of the biggest war chests of the 2024 electoral campaign.
“Team Ripple puts a stake in the ground,” Garlinghouse written the in December when the news broke huge sums raised by Fairshake and two affiliated PACs. Their first big target was Rep. Katie Porter (D-CA), a rising Democratic star and staunch Gensler ally who was running for Senate in Ripple’s home state of California. She faced a onslaught of negative advertising and finished a distant third in primary.
Fairshake has expanded its reach to other races across the country, supporting allies of both parties but putting significant pressure on Democratic Senate candidates in Ohio, Montana and other swing states. Schumer and Pelosi’s shift in tone during last week’s votes suggests the PAC approach could work in Washington. Even the White House seems to be retreating of his threat of veto on FIT21.
Republicans are paying attention, too. Presumptive presidential nominee Donald Trump is to court crypto companies, while highlighting the mistreatment of the industry by the Biden administration. In an election year where margins of victory could be tight, neither party can risk alienating an economically vital and increasingly engaged constituency.
Despite the personal ambitions of zealous regulators and the destructive infighting they wage, American innovation is difficult to suppress. Determined entrepreneurs like Garlinghouse are finding ways around hastily erected obstacles. Eventually, markets do their job and the economic benefits of new technologies are felt. This was the case with the Internet thirty years ago. Watch how this becomes reality for blockchain technology as the future unfolds.