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What will the SEC do about cryptocurrency?

On Behalf of | Sep 7, 2021 | Securities Litigation

The United States Securities and Exchange Commission (SEC) is still trying to figure out just how to handle cryptocurrency. Is it a security subject to regulation or something else? If it is subject to regulation, what will those regulations look like and how will they work? Unfortunately, the feds have yet to provide clear answers to these questions. Instead, the SEC has provided confusing statements that make the rules unclear and leave businesses and individuals, many of whom are looking to use this new form of currency as part of their investment strategy, with many unanswered questions.

Recent lawsuit raises concern

The SEC recently filed a lawsuit against Ripple Labs, a tech company that develops and distributes open-source payments protocol using blockchain.  The feds have likely narrowed their focus on this company because of the large sums of money at play. If successful, Ripple will have to pay over $1 billion for failing to play by the rules.

But what are the rules? As critics of the lawsuit point out, the feds appear to be using a “regulation by enforcement” approach. The SEC has taken a two-pronged approach in this lawsuit, stating first that the XRP cryptocurrency at issue is a long unregistered security subject to the SEC’s rules, and second, that everyone should have known it was a security. This second point has infuriated investors because comments from SEC leaders, like previous chairmen of the agency, have been confusing at best, and at worst, the exact opposite.

Future of lawsuit could signal future of SEC’s regulatory efforts in this arena

If the new chairman, Gary Gensler, continues to have his agency pursue this lawsuit, it could result in serious limitations on the SEC’s ability to enforce regulations against crypto while also hurting the credibility of the agency. If he backs out, he may need to reevaluate the role of the SEC in the cryptocurrency market.

Either way, the case shows that the SEC is looking to crack down on cryptocurrency. Those who invest in crypto are wise to stay abreast of these changes and act to protect their interests if contacted by the agency.