The Securities and Exchange Commission (SEC) has become the face of crypto opposition, inciting a wave of protests from crypto enthusiasts. In the first quarter of 2023 alone, the regulatory body imposed restrictive policies upon several crypto organizations.However, the SEC hit major snags and garnered criticisms in what appears to be a reprieve for the crypto community. What has the SEC done, and why are crypto enthusiasts displeased?

Examples of the SEC’s Actions Against Crypto Organizations

Although the SEC is a regulatory authority over cryptocurrencies, the agency appears to have launched a war against crypto. Here are some of its actions in Q1, 2023.

1. Opposed Binance–Voyager Deal

In February 2023, the SEC opposed Voyager Digital’s request to sell its platform to Binance, claiming that Voyager offered unregistered securities. The agency also raised concerns about the security of assets and plans for asset transfers on Binance.US. This occurred during Voyager Digital’s bankruptcy proceeding (the details of which are available on Stretto), where it was detailing its restructuring plan.

However, the federal judge criticized the SEC’s approach and timing, stating that the customers who had lost their funds were the priority. After raising questions regarding the SEC’s processes and the competition between regulatory authorities, the judge approved the deal.

2. Rejection of Grayscale’s Bitcoin ETF proposal

Although Grayscale filed its suit against the SEC in 2022, the hearing finally began in March 2023. Grayscale filed the lawsuit after the SEC rejected its request for a Bitcoin ETF approval, even though the agency approved a Bitcoin Futures ETF in 2021. The suit's basis is that a Bitcoin Futures ETF isn’t so different from a Bitcoin Spot ETF.

At the initial hearing, the presiding judge criticized the SEC’s rejection of Grayscale’s approval after previously approving a similar product. Still, the SEC maintained that the data required to determine if Bitcoin ETFs’ surveillance agreements could predict fraud and manipulation was lacking.

3. Continued Stance Against Ripple

In February 2023, the SEC’s chair Gary Gensler reportedly announced that most crypto assets are securities, revealing the agency’s bias against XRP, Ripple’s token.

As a result of Gensler’s statements, Stuart Alderoty, the chief legal officer for Ripple, requested that Gensler excuse himself from voting on crypto enforcement cases.

Meanwhile, the legal case between Ripple and the SEC continues after the judge struck out some of the SEC’s expert witnesses.

4. War Against Crypto Staking

The SEC claimed that Kraken, through its crypto-staking platform, enabled the sale and purchase of unregistered securities. The SEC’s allegations eventually led to the shutdown of Kraken’s on-chain staking service for U.S. investors. And Gensler followed up with a warning to other crypto staking platforms, eliciting a reply from Brian Armstrong, the CEO of Coinbase.

Coinbase, through Armstrong and its chief legal officer, Paul Grewal, emphasizes that staking is not a security under the Howey test or the U.S. Securities Act, contrary to the SEC’s claims.

5. Gary Gensler’s Comments

In Gary Gensler's speech, released on March 2, 2023, the SEC chair implied that crypto trading and lending platforms do not qualify as crypto custodians, whether they claim to qualify. This speech addressed the proposed safeguarding rule, created to expand the rules regarding asset custody. Gensler’s comments, which addressed the intersection between the rule and crypto, indicated his bias against cryptocurrencies.

Criticism of the SEC’s Actions

Despite the SEC’s proclaimed intentions of protecting investors in the widely volatile crypto market, the agency has been highly criticized by crypto participants and enthusiasts. It has been accused of forging ahead without clarifying its reasons and providing laws backing up its decisions.

In addition, the SEC is known to focus on enforcement instead of sorting out rules and regulatory responsibilities. For instance, in the case of the former Coinbase employee who pleaded guilty to insider trading, the SEC hurriedly piled on a securities fraud case.

Moreover, the SEC seems to be a lone wolf instead of collaborating with other regulatory bodies. A well-coordinated federal response to the lack of regulation in the crypto space is expected; however, there appears to be a turf war between agencies, including the SEC and the Commodity Futures Trading Commission, looking to lead the rapidly expanding sector.

SEC and Crypto Need to Find Common Ground

Although crypto enthusiasts are turning against the SEC, they also recognize the need for rules and regulations in the crypto industry. Bills like the proof-of-reserves bills have been well received as a solution to the problems in the space.

Crypto enthusiasts expect meaningful preemptive actions from the SEC to secure crypto investors instead of its regulation-by-enforcement approach. Regulatory clarity is essential, and if the SEC helps provide this clarity, the US can become a global leader in blockchain and crypto adoption and regulation.