The SEC has started an all-out political fight over cryptocurrencies

Article author: Michael J. Casey Article compilation: Block unicorn

**Michael Casey said the SEC lawsuit against Binance and Coinbase could linger in the U.S. legal and political system for years. **

The U.S. Securities and Exchange Commission (SEC) lawsuit against Binance and Coinbase this week has constituted a high-stakes battle that will see three branches of the U.S. government vie for power over whether the cryptocurrency industry will permanently leave the U.S. , and define the future of digital currencies.

The SEC's aggressive actions against Binance, the world's largest cryptocurrency exchange, and Coinbase, the largest in the United States, demonstrate the agency's extraordinary discretion. In an interview following the statement, SEC Chairman Gary Gensler said “we don’t need more digital currencies,” seemingly implying that he really wants to destroy the cryptocurrency industry.

By using all legal means against Binance, a thoroughly international company, and its high-profile CEO, Changpeng Zhao (aka "CZ"), the SEC is trying to demonstrate that its powers extend beyond the borders of the United States. Among them, the SEC’s claims include Binance’s offering of unregistered securities and mixing of customer funds.

In the case of Coinbase, the SEC is clearly targeting far more than this one defendant. The case is based on the notion that most securities traded on the San Francisco-based exchange are unregistered, raising legal issues for Algorand, Polygon and Solana, among others. These actions directly hit the centralized finance (CeFi) system on which Binance and Coinbase’s custody model is based, and indirectly also hit some of the major protocols that decentralized finance (DeFi) relies on.

However, this is far from easy for the SEC. For starters, these cases could take years to decide or resolve — if the SEC's three-year lawsuit against Ripple Labs is any indication. Both Coinbase and Binance have vowed to fight tough in the courts, putting pressure on the highly resourced SEC enforcement team.

What's more, the SEC's tough stance doesn't enjoy widespread support in other areas of the U.S. government. The timing of these actions is such that the institution is almost urging other centers of power to counter it.

other branches of government, other views

First, let's look at Congress. A draft bill to be introduced in the House of Representatives sets parameters for how to classify digital assets and limits the SEC's power to interpret cryptocurrencies under existing securities laws, limiting its ability to initiate such enforcement actions. The bill was sponsored by House Financial Services Committee Chairman Patrick McHenry (R-N.C.), who has been critical of Gensler’s tough action on the cryptocurrency industry, and the Agriculture Committee Chairman, Commodity Futures Trading Commission (CFTC, also Glenn Thompson (R-Pennsylvania), director of a key agency vying to have a bigger say in cryptocurrency regulation.

Whether the McHenry-Thompson bill will pass the Democratic-controlled Senate and eventually become law is doubtful in the current electoral term, but the proposed legislation is a key issue as the election season accelerates.

This leads to the second branch of government: the executive branch, under which the SEC and other such agencies fall. The lawsuits will fall into a presidential campaign in which the future of cryptocurrencies and digital assets will be part of the public debate like never before.

Already, support for cryptocurrencies has come from three presidential hopefuls: Robert F. Kennedy Jr. is challenging Biden for the Democratic nomination; Candidate Donald Trump's main challengers are Florida Gov. Ron De Santis and biotech entrepreneur Vivek Ramaswamy, another Republican contender. Republican front-runner Trump himself has used non-fungible tokens as a fundraising tool so far, though his statements about cryptocurrencies have been mixed. (Of course, his candidacy was clouded by his federal charges Thursday night for asking big questions.)

This level of focus on the industry will help shape the politics of how the SEC handles these cases in the future, whether or not Biden remains president.

Then there's the Supreme Court, which last month cut the Environmental Protection Agency's (EPA's) power to enforce rules against landowners under the Clean Water Act. What does this have to do with the SEC and cryptocurrencies? Conservatives who now control the court argue that the EPA is just the first regulatory agency that needs to be weakened. Larger attacks on executive agencies are coming, and the SEC may be a target.

In other words, a perfect political storm is brewing, making the outcome of this current war on cryptocurrencies difficult to predict.

**What happens next? **

The multifaceted nature of the battle also raises the stakes for this outcome, even if we may have to wait years to see it.

This could be the de facto death knell for cryptocurrencies in the U.S. if Gensler’s (SEC chairman) strategy of all-out attack wins. Developers will leave en masse for Dubai, Bermuda, Singapore, France, or any number of other jurisdictions that have aggressively set regulatory barriers for cryptocurrency innovation.

That’s not to say certain bank-licensed stablecoin ideas or actual asset tokenization strategies led by existing, regulated institutions and public corporations won’t be allowed or even encouraged in the US. But as these may struggle to interface with the permissionless architecture of banned “crypto” blockchains, antiquated U.S. capital markets may struggle to compete with new models of programmable money and decentralized governance being cultivated elsewhere.

However, this will not be a simple matter for the SEC, on the contrary, over time and the growing counterattack from cryptocurrency supporters in Congress and the courts may calm this wave of attacks. But what is the purpose? If such victories only further politicize and partisanize the issue, the bigger, more important battle — gaining mainstream acceptance and adoption — still needs to be fought.

What we need - for the peace of mind of all of us - is for the conversation of cryptocurrencies to transcend politics. Ideally, this would happen naturally because, after all, this is a technology—it should be apolitical. But, sadly, this will depend on the efforts of the cryptocurrency community. There should be a focus on educational efforts, showcasing real use cases, and demonstrating the benefits to humanity of this industry's approach to decentralized value exchange and data sharing.

We have to try to ignore the drama in Washington, not to get out of the political process, but to figure out how to engage in a way that appeals to both sides.

Part of that is focusing on positive narratives. No doubt there will be a market for such a story, no matter which side of the political corridor it is in, in a time of great uncertainty about climate, geopolitical tensions and the encroachment of artificial intelligence on society.