Crypto Assets industry faces challenges in the regulatory environment in the United States

Recently, the enforcement actions by two major regulatory agencies in the United States regarding the Crypto Assets industry have attracted widespread attention. The U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have taken action against two major trading platforms, reflecting the differences between regulators in the classification of Crypto Assets.

On one hand, the SEC plans to sue a large trading platform, accusing it of violating securities regulations. The SEC believes that Crypto Assets fall under the category of securities and should be regulated by them. On the other hand, the CFTC has accused another leading trading platform and its founder of violating commodity trading regulations, viewing certain popular Crypto Assets as commodities.

The divergence in regulatory attitudes has made the operating environment for Crypto Assets companies more complex. Since the collapse of a certain trading platform in November 2022, both regulatory agencies have adopted a more proactive and even hostile attitude towards the encryption industry, asserting their jurisdictions through enforcement actions.

Former White House Chief of Staff and advisor to a compliance platform Mick Mulvaney stated: "If people want to know what the attitude was at the beginning of the year, now they know it is hostile. I think that incident was not the cause, but rather an excuse."

Since the beginning of this year, the SEC has launched a series of lawsuits against cryptocurrency companies and individuals in the United States. These actions include accusations that a trading platform and crypto asset lender provided unregistered securities issuance services, reaching a settlement with another trading platform requiring it to cease a certain service, and charges against several celebrities for failing to disclose compensation for "illegal promotion" of crypto tokens.

Mulvaney believes that the SEC is "showing its power" through enforcement actions to strengthen its claims on the industry, but this approach has lost its fairness. Even within the SEC, there are disagreements on how to handle Crypto Assets. SEC Commissioner Hester Peirce publicly opposes several actions related to Crypto Assets, calling for a clear compliance pathway.

At the same time, the CFTC's lawsuit specifically mentions popular Crypto Assets such as Bitcoin, Ethereum, and Litecoin as commodities. CFTC Chairman Rostin Benham stated that this should serve as a warning to the digital asset industry that the CFTC will not tolerate intentional circumvention of U.S. law.

In the absence of clear regulatory guidance, Crypto Assets companies have to do their best to anticipate complaints that may come from different directions. Dave Siemer, CEO of an investment firm, likened the situation to "driving on a road without signs or lanes, trying to figure out the rules based on who gets pulled over."

Crypto Assets companies are frustrated with the fierce criticism of regulation, as they have been trying to communicate with regulators to seek clearer rules. The Chief Legal Officer of a trading platform, Paul Grewal, stated that interactions with the SEC feel more like a "one-sided monologue" rather than a dialogue. He emphasized that the company is not seeking special treatment but hopes to be able to register and comply with strict standards.

Industry insiders believe that a better solution is for the U.S. Congress to enact comprehensive Crypto Assets legislation. While the EU and some countries are taking swift action, the U.S. is lagging in this regard. Mulvaney expects that it is unlikely for comprehensive Crypto Assets legislation to be passed this year before the 2024 presidential election.

The uncertainty of the regulatory environment may cause Crypto Assets companies to leave the United States. Some companies have already begun to establish headquarters overseas or plan offshore versions of trading platforms. Small Crypto Assets companies are also developing contingency plans, and some companies have even stopped hiring in the United States.

SEC Commissioner Peirce emphasized that the goal of regulators should be to facilitate safe technological experimentation rather than pushing the Crypto Assets industry overseas. She called on all parties to "talk like adults" instead of merely requiring companies to register, as currently, no one really knows what that means.