The SEC Protects the System, Not You
The SEC’s attack on Coinbase puts their malicious disregard for regulatory clarity and their clear intent to crush this industry on full display
AevanStock/Shutterstock modified by Blockworks
For years, founders, builders, investors and market participants sought regulatory clarity for the blockchain industry. What they have received are opaque blanket statements, backhanded comments and a series of ill-founded lawsuits.
The Wells notice issued by the SEC to Coinbase, a legitimate and innovative public company, clearly demonstrates that the regulatory body has no intention of upholding any part of its stated mission. Instead, they are hell-bent on crushing the world’s most innovative technological movement.
The SEC has a three-part mission: “to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” However, it is clear from their actions that their actual mission couldn’t be further from their stated one.
The invention of cryptocurrencies and the blockchain industry has led to the creation of a market that, at its recent peak, skyrocketed to a value of $3 trillion. Without the SEC so much as lifting a finger, a $3 trillion market arose on the back of a technological revolution, predominantly within American borders.
Per their stated mission, the SEC’s job would be to regulate this industry in a way that protects investors, fosters innovation, and maintains a fair, orderly, and efficient market.
The SEC has done the complete opposite, and frankly, it is un-American.
Where crypto comes from
To understand why the SEC is behaving like it is, we have to go back to crypto’s origins.
Bitcoin was created over a decade ago — in the direct wake of the 2008 financial crisis — as a means for people to protect themselves from the economic turbulence caused by centralized fiat currencies.
The result has been a technological and financial movement to decentralize power, giving people access to financial freedom and privacy that had been taken away from them. This is a market and a movement that should be allowed to flourish, but instead, it is under assault.
By forgoing the traditional rulemaking process — which normally includes opportunity for public comments and collaboration between the regulator and outside parties — the SEC has effectively decided that it is their way or no way.
They have met the industry with an iron fist and a blind swinging regulatory hammer.
After the gold standard
The validity of paper currencies have been on the decline since the Nixon shock in 1971, when the US abandoned the gold standard. The fiat dollar then arose, which is backed by nothing more than a popular belief in the government (or entity) that issues the currency.
This change completely altered the essence of money, giving those in control the ability to artificially manipulate its value due to the ever present potential to print money endlessly, unchecked.
Simply put, the Federal Reserve creates money, or raises interest rates, when it believes the economy would benefit from it. This means that a select group of central planners has — by every definition — a monopoly on the money supply.
Cryptocurrencies challenge this monopoly.
And while the Federal Reserve has an extensive breadth of power and monetary tools at its disposal, it does not have the legal power to take action against the technology. However, a closely associated agency with similar goals does: the Securities and Exchange Commission.
If the industry and regulators could work side-by-side to create effective guardrails for the industry — in a way that fosters innovation while protecting investors — this movement could thrive. Instead, the SEC has engaged in an anti-innovation campaign, rife with regulatory overreach, and pursued a “regulation by enforcement” strategy in an attempt to bring this market to its knees.
Take stablecoins. Although one could argue that the US dollar only benefits in its role as the backing for almost all stablecoins, the US government doesn’t seem to agree.
The SEC’s strategy has continued to manifest itself in a series of colorful and intimidating headlines, along with a matching series of lawsuits and enforcement actions aimed at discouraging other players in the industry. The cases they have pursued are largely based on nothing but shock value, as opposed to an aim toward regulatory clarity or investor protection.
While some of the more malicious scandals in the industry perpetrated at the behest of bad actors (like FTX, Terra/Luna, and Celsius) were left untouched by the SEC, good faith projects and companies like Coinbase have been prey to the regulators desire to send a maligned message to the industry.
Born out of Wall Street
The SEC’s intimate ties to the banks on Wall Street – the same ones that the federal government bailed out in 2008 and led to the creation of the industry – has prompted their haphazard and malicious campaign to keep financial power centralized.
It is a widely known, seldom discussed fact that the individuals running the financial regulatory bodies in the federal government have direct ties to various institutions of private financial power in the country. Look no further than the resumes of the current and previous chairs of the SEC such as Jay Clayton and Gary Gensler, and the chair of the Federal Reserve, Jerome Powell.
It is a closed club, not meant to protect individuals, but rather to protect institutions.
The institutions that are supposed to protect investors and the economic interests of the people have strayed far from their mission, and are in turn stunting one of the fastest-growing industries and markets of our time, pushing it offshore. The US is often an example for the English-speaking world in terms of setting an example — Canada, Australia, the UK and others usually follow in America’s regulatory footsteps. Instead, other markets around the world are rapidly adopting this technology, and they are stealing American talent and value with their clearer regulatory frameworks.
Although the technology of the crypto industry is fundamentally built to promote freedom, something deeply American, the coercive and authoritarian disposition of the regulators is crushing it, because it cannot be controlled.
Thankfully, industry players have grown large enough to fight back against this massive regulatory overreach. Coinbase’s CEO and CLO have both been clear that if necessary, they will fight back in court. It is high time the industry stands up for itself instead of tiptoeing around the SEC and its regulatory hammer.
This industry need not be ashamed of the groundbreaking work it is pioneering.
Instead, we should be clear in our intentions to amend data privacy issues, provide people with improved financial services, and to democratize the economy: fixing the problems that ail our current institutions and put the power in the hands of the people, where it always has and always will belong.
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