Joshua Klayman, U.S. Head of Fintech and Head of Blockchain and Digital Asset at the law firm Linklaters, long forecasted the SEC’s recent lawsuits against Binance and Coinbase. I see this as a massive push, a very unsubtle move by the Chairman Gensler and the SEC, she said. They’ve been trying to nudge the industry for a long time to change its practices, and now it seems they moved from nudging to a pretty swift kick, or, you might say, a one-two punch.
The SEC is sending a clear message to the crypto industry: the runway has ended and things need to change now. Klayman believes the SEC is trying to make its mark as the U.S. Congress is discussing the Digital Asset Market Structure and Investor Protection Act draft bill. The SEC has proposed two rule changes, including a proposal to expand the definition of exchange and the one to expand the existing custody rule, both of which would inscribe crypto assets into the existing securities regulations.
Klayman believes the Coinbase and Binance lawsuits might convince the U.S. Congress that it’s time to act, but, most likely, many important issues will still have to be resolved in court. She is generally optimistic about the future of the industry, especially where crypto can expand the realm of capital markets, for instance, in the tokenization of real-world assets and tokenized securities.
The SEC’s actions have caused uncertainty for companies with similar exposure to the law. Klayman warns that crypto companies will need to take a hard look at their risk tolerance and decide whether they have the stomach for grinding legal battles.
If you need money to be able to fight a multi-year [legal] fight, and you’re making money a certain way, there are two questions, Klayman says. On one hand, maybe you continue doing what you’re doing to fund your defense. On the other hand, if you make any changes [to your business], will the SEC say that this was an admission that you did something wrong?