The past two years have been especially painful, as the collapses of Luna, Three Arrows Capital, and FTX have brought the industry to its knees, says Matt Walsh, founding partner of Castle Island Ventures. The SEC is supposed to be a disclosure-based regulator that is technology-neutral, meaning they establish a framework for issuers to divulge pertinent information to investors, but do not unilaterally take a stance on which technologies ought to make it to market.
The U.S. Securities and Exchange Commission (SEC) is running a covert demolition job on the blockchain industry to protect its turf and advance the political aspirations of the current chairman. This is in direct opposition to the SEC’s three-part mandate to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
Every day, I speak with startups that are moving offshore and established firms delaying hiring plans due to regulatory uncertainty, says Walsh. The SEC has an important enforcement role to play in this market and should continue to root out the bad actors. Unfortunately, instead, it has embarked on a plan to regulate via enforcement and rulemaking in lieu of working with Congress to enact market structure reforms.
The SEC is manipulating esoteric but consequential rules to create an environment where even the most trusted financial institutions are not able to operate digital asset businesses in the United States. This includes Staff Accounting Bulletin 121 (SAB 121), which sought to update how institutions maintain customer records, and proposed updates to the longstanding custody rule and new qualifications affecting broker-dealers.
The United States blocking the emergence of the digital asset industry does not mean that the industry will not exist, says Walsh. It just means that it will flourish elsewhere.
Members of Congress from both sides of the aisle have seen the geopolitical importance and promise of blockchain technology and have promised legislation to protect it from our nation’s regulators.