The Securities and Exchange Commission’s (SEC) lawsuits against Binance and Coinbase this week have set up a high-stakes battle that will engage all three branches of the U.S. government in a competition for power, determine whether the crypto industry will decamp the U.S. for good, and define the future of digital money. In saying we don’t need more digital currency in interviews following the announcements, SEC Chairman Gary Gensler suggested he truly does want to destroy the crypto industry.
The SEC’s aggressive actions against Binance, the world’s biggest crypto exchange, and Coinbase, the biggest in the U.S., are a big flex, one that reveals the agency’s extraordinary discretionary power. By throwing the book at Binance, a thoroughly international company, and its high-profile CEO, Changpeng Zhao (CZ), with a suit that, among other claims, alleges that it offered unregistered securities and commingled customer funds, the SEC has sought to demonstrate that its reach extends beyond U.S. borders.
The SEC’s hardline approach does not enjoy widespread support in other areas of the U.S. government. The timing of these actions being what it is, the agency is almost willing other bases of power to come after it. A draft bill that will soon come before the House sets parameters for how to classify digital assets and circumscribes the SEC’s powers of interpretation of crypto within existing securities law, curtailing its capacity to launch these kinds of enforcement actions. It is co-sponsored by Rep. Patrick McHenry (R-N.C.), the chair of the House Financial Services Committee, who has been critical of Gensler’s aggressive actions against the crypto industry.
Whether the McHenry-Thompson bill gets through a Democrat-controlled Senate and eventually makes it into law is doubtful within the current electoral term, but the proposed legislation makes for a very important talking point as the election season ramps up. Already, expressions of support for crypto have come from three presidential hopefuls. Trump, until now the Republican frontrunner, has himself used non-fungible tokens as fundraising vehicles, though his pronouncements on crypto have been all over the shop.
The multi-front nature of this fight also raises the stakes in that outcome, even if we have to wait years to see it. If the Gensler strategy of all-out attack wins, it could be the de facto death knell for crypto in the U.S. Developers will leave en masse to set up shop in other jurisdictions that are proactively developing regulatory guardrails for crypto innovation to occur.
What’s needed – for all of our peace of mind – is for the crypto topic to transcend politics. It would be nice to think that this would happen organically because, after all, this is a technology – it should be apolitical. But, sadly, it’s going to be up to the crypto community to engineer. There should be a focus on education efforts, which show real use cases and demonstrate the benefits to humanity from this industry’s approach to decentralized value exchange and data-sharing. We must try to ignore the theater in Washington, not to disengage with the political process but to figure out how to do so in a way that can appeal to both sides.