The SEC has decided to deepen its investigation into crypto projects and the crypto industry.
According to what Forbes revealed yesterday, the SEC Chairman Gary Gensler has decided to hire more staff to investigate this industry specifically.
In fact, back in May last year, at the same time as the implosion of the Terra/Luna ecosystem, the SEC made a similar statement, revealing that it had hired 20 people to place them in the unit responsible for protecting investors in the crypto markets and from cyber threats.
Indeed, the so-called Cyber Unit had even been renamed the Crypto Assets and Cyber Unit, with plans to grow it to 50 staff.
The SEC’s new course against crypto
Recently an SEC spokesperson said that this goal has almost been achieved, adding that despite this, the agency is planning to add more staff to that unit.
Digital asset investigations have become a priority for the SEC.
Indeed, the agency has been in the news a lot in recent months, mainly because of Gensler’s statements that all cryptocurrencies are securities except Bitcoin.
The fact is that the SEC, or Securities and Exchange Commission, deals specifically with securities, and if cryptocurrencies are securities then there’s a problem.
In order to sell securities legally in the US, the sale needs to be approved by the SEC, and to date the sale of no cryptocurrency has ever been approved by the agency.
The fear that is circulating within the crypto industry is that the SEC may lash out at exchanges that allow the sale of cryptocurrencies in the first place, considering these sales illegal because they would be unregistered securities.
If this is the case, centralized crypto exchanges could even risk having to close down, or be limited to offering exchanges in Bitcoin or possibly in a handful of cryptocurrencies that are not considered securities, including for example stablecoins.
The problems for the cryptocurrency industry
According to the author of the Forbes article, Jack Kelly, once the SEC steps up its investigation, other regulators will do the same.
In addition, it certainly appears that the agency is expanding its staff to examine, investigate, and potentially prosecute violations of the Securities Act, that is, to figure out which exchanges are operating within the law in the US, and which are not.
For example, Coinbase is a publicly traded US company, and this could mean the need to comply with all decisions made by the agency.
In addition, additional SEC staff would need to include supervisors, investigative lawyers, fraud analysts, and legal advisors with experience regarding violations of the Securities Act, and in particular regarding cryptocurrency offerings, exchanges as well as lending and staking services, decentralized finance platforms (DeFi), non-fungible tokens (NFTs), and stablecoins.
According to Gensler, the US has the largest financial market in the world because investors trust them, and as more and more investors also operate in crypto markets, it becomes increasingly important to devote more resources to monitoring them.
He also revealed that the Division of Enforcement’s Crypto Assets and Cyber Unit has already reviewed dozens of cases of people suspected of trying to take advantage of cryptocurrency investors.
It is enough to say that since 2017, when this unit was created, it has already initiated more than 80 enforcement actions related to crypto offerings and platforms, issuing more than $2 billion in fines.
The reaction of the crypto industry
Even though it is well known and acknowledged by all that there is fraud in the crypto sector, it does not seem that crypto operators agree with these allegations.
In particular, there is a questioning of Gensler’s idea that all cryptocurrencies are securities, except Bitcoin, and that therefore they almost all fall under the jurisdiction of the SEC.
However, it should be pointed out that the definition of security as an investment contract seems to fit rather well for all those tokens and cryptocurrencies that were launched on the market precisely by convincing investors to buy them by promising them future gains.
Despite this, the SEC’s lawsuit against Ripple, which was accused precisely of selling XRP as a security, has still not come to a conclusion after more than two years of court arguments.
As long as this lawsuit does not end with a clear victory for the SEC, the crypto sector will probably be able to stay safe, as well as in the event that Ripple wins. The fact is that it does not seem at all easy with current laws to determine with certainty whether cryptocurrencies like XRP should be considered securities or not.
So on the one hand there is Bitcoin, which is definitely not a security. On the other are all those tokens that have been sold with promises of financial returns, which probably are.
In between there are cases like XRP, where people are already trying to figure out whether it actually is to be considered security or not, and cases like Ethereum where for now we are limited to theoretical reasoning.
To this must then be added NFTs and stablecoins.
