Should regulators decide the rules they enforce? Federal regulators, such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), enforce laws based on executive authority, generally adhere to laws created by legislators, and are subject to legal challenges through the court system. It would be reasonable to give them some degree of autonomy, as long as it is restrained.

However, for potentially novel technologies and businesses, regulatory self-determination can hinder the development of emerging industries.

SEC refuses to create new regulations

For example, crypto asset (virtual currency) proponents believe that distributed self-executing ledgers are disruptive (in a good way) enough to warrant custom rules. It’s no secret that SEC Chairman Gary Gensler doesn’t agree with this.

Gensler has repeatedly stated that 99.99999999% of crypto tokens are securities and therefore fall under the jurisdiction of the SEC, and that blockchain’s “innovation” is simply a new way of doing an old thing. And Mr. Gensler has applied existing rules and regulations to rein in an industry that is a breeding ground not only for financial experimentation but also for fraud.

The same goes for this time. In a filing in an ongoing lawsuit between the SEC and Coinbase, the SEC reiterated its position that it has “discretion to determine the timing and prioritization of regulatory matters.” Gensler added in the press release that current law “adequately governs crypto-asset securities.”

Related article: SEC rejects Coinbase’s petition to regulate crypto assets as “unreasonable”

This document states that Coinbase asked the SEC in 2022 to develop new regulations tailored to blockchain, but the SEC did not respond, so in 2023 Coinbase, the largest exchange in the U.S. It was filed in response to a petition that led to a lawsuit. Coinbase had asked the court to force the SEC to create new rules or at least respond to Coinbase’s petition.

So, is the SEC’s response appropriate? The SEC said Coinbase’s petition was “unworkable” but did not provide further details. In two pages, the SEC states (citing a 2007 Supreme Court case, Massachusetts v. EPA) that the SEC has “broad discretion” to act and that it “benefits from engagement with market participants.” , and noted that “further consideration of the issues raised in the petition may be undertaken.”

Regulatory clarity once again not provided

However, the SEC does not provide detailed information on why it considers crypto assets to be securities and that Coinbase specifically wants to establish clear “information disclosure requirements regarding the offering and sale of crypto asset securities.” I didn’t say anything.

The closest the SEC has come to this topic is when it cites the fact that it is involved in “numerous” regulatory enforcement actions against “participants” in the crypto industry (including many crypto companies). But given that Mr. Gensler said that the “open door” was actually closed, does this mean that these “engagements” are in the SEC’s “benefit”?)

In fact, in a surprising circular move, the SEC states that its views on crypto assets are informed by “data and information” obtained from “the Commission’s ongoing legal actions.” This means that the SEC pursuing crypto companies for securities law violations may consider changing the rules supporting such legal actions because of information it learns while pursuing such cases. I can’t.

But what if these legal actions were never justified in the first place? This would not be the first time the SEC has been self-referential on legal matters.

In a recent lawsuit against Kraken, the SEC cited the fact that Kraken listed tokens that the SEC called securities in its lawsuits against Binance and Coinbase. But so far, the SEC has not determined as an absolute fact whether any token is a security.

“I know Gary[Gensler]has said that the majority of tokens are securities, but to date, most cases involving the SEC have not held that.” said Austen Campbell, a professor at Columbia Business School and former Paxos fund manager.

Mr. Campbell pointed out that in the SEC’s ruling in the case against Ripple, Judge Torres clearly distinguished between the “investment contract” that Ripple entered into with XRP’s institutional investors and the token itself. It noted that it had determined that XRP is not a security.

And that’s not to mention the Administrative Procedures Act (APA), which could limit the SEC’s “broad discretion” to act without prior consent from Congress.

intuition rather than logic

So, does the SEC’s response matter? Honestly, it seems like the same thing over and over again. This means that institutions with some degree of autonomy will continue to handle crypto assets as they wish.

In this “age of vibes,” where meme coins top the charts, inflation is felt more than it appears on indicators, and investment decisions are made based on intuition, rather than based on sound logic, Mr. Gensler, who makes the judgment that tokens are securities because he feels that way, can be said to be the most vibe-like person.

When Coinbase asked for new rules in 2022, Faryar Shirzad, the company’s chief policy officer, wrote a detailed blog pointing out that “securities rules don’t work for digitally native products.” wrote. He cited tokenized debt and equity, utility tokens, and NFTs as examples.

It is clear that crypto assets are used for investment, and it is clear that the SEC has a role to play in overseeing the crypto industry and protecting the safety of investors. Coinbase’s petition sought to determine when and where this would be appropriate, and the SEC, unfortunately, completely refused to weigh in on that determination.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: SEC Chairman Gary Gensler (Jesse Hamilton/CoinDesk)
｜Original text: Coinbase Tried to Rein in a Renegade SEC That’s Trying to Rein in a Renegade Industry