Will The SEC Damage Cryptocurrency Permanently?

The Securities and Exchange Commission is an independent federal agency regulating the United States securities markets. Since its inception nearly 100 years ago, the overarching theme of the agency has been to assist retail investors from the more malicious market elements. 

Ensuring that organizations supply information about their financial performance is one of the fundamental points of the SEC's operation. 

Ultimately, with a focal point on transparency and nurturing an environment of ethical practice, the SEC is often found in the firing line of some of the biggest companies in America.

Cryptocurrency has become a minefield for regulators, as the old definition of security is a dated and rigid definition that can be ambiguous to apply to the transnational digital assets that constitute today's market. 

Gary Gensler, the chair of the SEC, has come under intense scrutiny from the cryptocurrency community for his staggered and uneven technique for legal action against companies in the industry.

Recently, he has compared cryptocurrency stablecoins to "casino chips". However, many people in the cryptocurrency space would vigorously deny this. If you want to play casino games, there are much better ways to do it than to choose cryptocurrency. 

Anyway, let's look at some examples of the SEC taking action against cryptocurrency companies.

XRP/Ripple Labs

In December 2020, Gary Gensler and the SEC aimed at the multi-billion dollar tech company Ripple. They have accused the executives of profiting from unregistered "security" sales while marketing it as a cryptocurrency. XRP is the asset in question.

At one point in 2017, XRP was the second-largest cryptocurrency by market cap. However, when the SEC announced their lawsuit, XRP was removed from all American cryptocurrency exchanges. 

It has crippled the company, and even though it is legal to trade in Great Britain, Australia and Japan, it has caused the asset price to depreciate massively.

Ripple Labs CEO Brad Garlinghouse has repeatedly argued that XRP isn't a security. However, it has set the agenda for the SEC and its battle against cryptocurrency. Unfortunately, over two years since the SEC announced this lawsuit, there has yet to be a resolution.

Kraken Staking

The SEC has recently settled with cryptocurrency exchange Kraken for $30 million. The SEC stated that Kraken shouldn't be offering staking for tokens, and they have removed the facility from their exchange following this result. 

Staking is when investors store their digital assets for a set period to earn interest. They are rewarded with a position as network validators by staking, meaning they can verify and process transactions. 

Although the SEC may disagree, it brings stability and liquidity to the network and is often seen as an effective way of managing volatility. Bitcoin and Ethereum both dropped 5% in light of this news.

Future Dialogue

Gensler has already stated that a wave of cryptocurrency regulations will come into force this year. Many analysts are divided. Regulation can be a good thing when implemented correctly. 

However, if the examples we have discussed are anything to go by, it seems like a disjointed and uneven approach. 

Uncertain times look ahead for the cryptocurrency community. However, the monstrous FTX collapse, which saw billions in customer funds misappropriated, took place right before their eyes with no sanctions. This makes the SEC's long-term strategy unclear.

Many traders and experts in the space have cast doubt on whether any announced regulation will encourage cryptocurrency innovation or stagnate it completely. Many top cryptocurrency projects have discussed moving to other countries with more transparent regulations and a more cryptocurrency-friendly environment.

Conclusion

The SEC's scattered approach has left the American cryptocurrency market beleaguered and dishevelled in the short term. 

It is disappointing for many investors and traders as a simple case of providing clarity, and a regulatory framework would bring many innovative blockchain companies to the US. However, the real battle between traditional finance and cryptocurrency is where the real issue lies for many investors. 

Bitcoin was designed to negate any need for a central bank to oversee transactions. However, if the banking sector believes traditional finance is under serious threat, laws and legislation will be extremely stringent, especially in the States.

Cryptocurrency will survive in the long run, many countries are looking for further adoption of digital currencies, and many corporations are already using blockchain technology. In addition, giant corporations like Blackrock and Tesla have Bitcoin on their balance sheet, so it won't go away anytime soon. 

If the SEC does stifle cryptocurrency in America, it could be a wrong move in the long run. Ultimately, it could see the United States lose its grasp as one of the world's leading centres of financial innovation. Of course, cryptocurrency shouldn't be damaged permanently, but who knows what is around the corner?