There will be no fireworks for the digital asset sector this July Fourth.
It’s looking like the course du jour being cooked on the grill this Independence Day could be the cryptocurrency industry itself, with the Securities and Exchange Commission (SEC) being sure to turn the heat up as high as possible.
That’s because the Gary Gensler-chaired agency has decided that pretty much every crypto token outside of bitcoin, all 25,000-plus of them, can be defined as a security and should therefore be regulated by the agency.
And rather than chase down each individual token, the SEC is going right for the jugular and targeting the major players that facilitate the exchange and trading of digital assets, as well as the sector’s on-and-off ramps to traditional financial ecosystems.
After all, as popularized and promoted by many colonialist pamphlets during America’s 1776 revolution: Cutting off the head of the snake is the best way to kill it.
To date, around 70 cryptocurrency tokens are listed as part of the SEC’s wide net of enforcement lawsuits, including the highly publicized suits filed against crypto exchanges Binance, Coinbase, and Bittrex, industry players Ripple Labs and Terraform Labs, as well as other sector actors — meaning the tokens-slash-securities, among them many of the most popularly traded digital assets, are officially implicated in crypto’s ongoing legal fight.
So, is it lights out for crypto in America? Possibly.
But things are a little different abroad, depending on where you turn — something crypto firms based in the U.S. are scrambling to take advantage of, even as they try to fight things out on home soil.
Read more: Will SEC Suit Against Coinbase Land Heads or Tails for Crypto?
In Search of an Offshore On-Ramp
Crypto firms feeling burned in the U.S. are searching for greener pastures abroad.
Hong Kong, the U.K., the European Union (EU), and Singapore are all increasingly being viewed as attractive jurisdictions by crypto players, given the hostile landscape in the U.S.
There are also island nations, including the Bahamas, Bermuda and the British Virgin Islands. Beyond just offering attractive tax environments, these island havens allow companies to technically operate outside the purview of America’s regulatory and governmental bodies — sometimes with disastrous consequences.
At the center of the SEC’s lawsuits is the allegation that among the hundreds of cryptocurrencies being traded across both Binance’s U.S.-based platform and Coinbase’s crypto exchange, at least 19 of them are securities.
And at least five of those tokens alleged to be securities by the SEC’s lawsuits have been approved for trading by the Hong Kong government’s just-enacted crypto licensing rules, the Virtual Asset Trading Platform Operators Licensed by the SFC.
The rules went into effect June 1.
As reported by PYMNTS, Hong Kong has been taking strides to redevelop itself into a hub for cryptocurrencies, even as the digital asset sector and regulators butt heads elsewhere in Asia.
Still, crypto remains banned outright across mainland China, and a Chinese economist who once envisioned bitcoin’s “corpse” was recently elevated as top Communist Party official at the People’s Bank of China (PBOC) — an indication that the country isn’t likely to soften its stance on cryptocurrency, which is that all crypto transactions are illegal.
Coinbase has expanded its business in the U.K. as it looks to capture revenue outside of the U.S., and the EU was the first major economy to pass a crypto licensing framework, Markets in Crypto-Assets (MiCA), this spring.
“This puts the EU at the forefront of the token economy,” said Stefan Berger, lead MEP for the MiCA regulation. “The European crypto-asset industry has regulatory clarity that does not exist in countries like the U.S.”
See also: Crypto Continues to Serve as Case Study in Behavioral Economics
A Culture of Noncompliance
But is the SEC in the wrong, or has the crypto sector just gone too far a few too many times, leaving too many retail investors holding the bag as executives abscond with billions?
As PYMNTS wrote, after a 2022 full of fraudulent evaporations and disastrous bankruptcies, as exemplified by the November blowup of the crypto exchange FTX and the rapid fall from grace of its founder, Sam Bankman-Fried, the federal regulator is likely feeling burned by the sector after trusting its “let us innovate” plea.
“The crypto community believed and had a real conviction what they were doing was so new that existing laws could not possibly apply,” Amias Gerety, partner at QED Investors, told PYMNTS CEO Karen Webster in a June conversation.
This “spirit of noncompliance” has seen crypto firms consistently retreating in “carefully noncompliant steps” from accepting that they may be liable for adhering to certain existing regulations to the point where they are now quibbling over miniscule legal technicalities, is in part what has drawn the SEC’s ire, Gerety emphasized.
That’s why “business as usual” may just be the best choice for the embattled industry, because it could support their legal posture. And what’s more American than that?
