Crypto companies are frustrated with the U.S. government for its lack of clear regulations on the industry and the Securities and Exchange Commission for its aggressive crackdown on digital currency firms, according to several executives who spoke to CNBC.
Unlike other countries, the United States has yet to come up with a comprehensive framework or set of regulations that would allow cryptocurrency and blockchain companies to operate without fear of being targeted by regulators.
Meanwhile, since the collapse of crypto exchange FTX last year, the US SEC has stepped up enforcement actions against companies.
On Wednesday, SEC exchange Coinbase sent a Wells notice, alert the company that it had identified potential violations of US securities laws. SEC too exposed fraud and unregistered securities allegations against crypto founder Justin Sun and celebrities who endorsed the digital coins he ran.
The SEC is currently in legal disputes with a number other companies including Ripple, Genesis and Gemini.
“It feels uncooperative,” a senior crypto executive at the Paris Blockchain Week event told CNBC, speaking on condition of anonymity because of the sensitive nature of the matter. “It’s very frustrating for players who have done the right thing all along.”
Joe Lubin, CEO of ConsenSys and co-founder of Ethereum, told CNBC on Thursday that he believed the ecosystem was “generally frustrated.”
“I think we’re kind of continuing to see the SEC play this game of punishing the people who are still surviving. And it’s a little bit, you know, kind of a frustrating thing to observe,” Nicolas Cary, president of Blockchain. com, told CNBC on Thursday.
Much of what the SEC has done is about applying existing rules to the crypto industry, which was formed several times decades after the Howey test — one of the key tests for determining whether something is a security or not.
Many in the crypto industry believe that this is not the right path to take.
“Where I think you have less successful regulatory regimes is when you try to analyze crypto through the lens of traditional finance. You say, ‘well, is it a bit like a security? Is it a commodity?’ … No, it’s kind of none of those things. It’s crypto,” Oliver Lynch, CEO of Bittrex Global, told CNBC Wednesday.
The SEC was not immediately available for comment when contacted by CNBC.
CNBC spoke to many executives on hand at Paris Blockchain Week, one of the most prominent crypto conferences in Europe, and one request executives made to US regulators was the need for clarity.
“We would like to have a little more regulatory clarity,” Silvio Micali, founder of blockchain firm Algorand, told CNBC on Wednesday.
Bitcoin has had a strong start to the year with the cryptocurrency seeing a huge rally.
Jakub Porzycki | Nurphoto | Getty Images
Some have expressed some sympathy with the SEC, but suggest that the watchdog is only operating within existing rules and that it is up to the US government to change them.
“What are they going to do? If all you get is a hammer, the whole world looks like a nail,” Bittrex Global’s Linch said.
Blockchain.com’s Cary said the SEC is “trying to do its job to protect consumers.”
What the SEC Says
SEC Chairman Gary Gensler addressed many of these points in one opinion piece he wrote in The Hill this month, indicating that the regulator has been clear about the rules.
“I find the argument that there is a lack of clarity in the securities laws unpersuasive,” Gensler said. “Some crypto companies may announce that the laws are unclear rather than admit that their platforms do not have sufficient investor protection.”
He cited cases where crypto companies fall under existing securities laws, such as when a company offers lending products.
Gensler also said “cryptobrokers aren’t exactly in line to register with the SEC and comply with the laws passed by Congress.”
The SEC chairman said enforcement action is “another tool” in the regulator’s toolbox to root out “violations.”
The US risks falling behind Europe
Executives have warned that the lack of clear regulation in the US could cause it to fall behind other countries and jurisdictions.
“The onus, I think, is on Congress to actually create a legal framework that properly regulates crypto, because … crypto is here to stay,” Linch said.
Governments around the world are considering how to regulate crypto. Places like Switzerland and Dubai have marketed themselves as crypto-friendly destinations with favorable regulation.
Meanwhile, the European Union is slated to introduce the Markets in Crypto-Assets, or MiCA, regulation this year, designed to bring certain rules in and around digital currency businesses.
Asked by CNBC if the US is at risk of falling behind other jurisdictions in the crypto economy, Monica Long, president of Ripple, said: “We think so.”
“Europe is really emerging as a leader in terms of setting really clear rules and regulations that allow crypto businesses and also traditional finance to embrace crypto,” Long said.
The Ripple president referred to MiCA, a law that required the consent of all 27 nations that make up the European Union, calling it “remarkable when the United States has a government and they can’t get their act together.”