Crypto companies are frustrated at the U.S. government for its lack of clear rules for the industry and the Securities and Exchange Commission for its aggressive actions against digital currency firms, according to multiple executives who spoke to CNBC.
Unlike other countries, the U.S. has yet to come up with a comprehensive framework or set of regulations that allows cryptocurrency and blockchain firms to operate without fear of being targeted by regulators.
Meanwhile, since the collapse of crypto exchange FTX last year, the U.S. SEC has stepped up enforcement action against companies.
On Wednesday, the SEC sent exchange Coinbase a Wells notice, warning the company that it had identified potential violations of U.S. securities law. The SEC also unveiled fraud and unregistered securities charges against crypto founder Justin Sun and celebrities that endorsed the digital coins he was pushing.
The SEC is currently in legal disputes with a number of other companies including Ripple, Genesis and Gemini.
“It feels uncollaborative,” a senior crypto executive at the Paris Blockchain Week event told CNBC, wishing to remain anonymous due to the sensitive nature of the matter. “It’s very frustrating for players that have been doing right the whole time.”
Joe Lubin, CEO of ConsenSys and co-founder of Ethereum, told CNBC Thursday that he thought the ecosystem was “generally frustrated.”
“I think we’re sort of continuing to watch the SEC play this game of punishing the people that are still surviving. And it’s a little bit, you know, sort of a frustrating thing to observe,” Nicolas Cary, president of Blockchain.com, told CNBC on Thursday.
Much of what the SEC has done involves applying existing regulations to the crypto industry, which were formed several decades after the Howey Test — one of the key tests to determine whether something is a security or not.
Many in the crypto industry feel 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 Linch, CEO of Bittrex Global, told CNBC Wednesday.
The SEC was not immediately available for comment when contacted by CNBC.
CNBC spoke to numerous executives on the ground at Paris Blockchain Week, one of the most prominent crypto conferences in Europe, and one request executives made to U.S. regulators was the need for clarity.
“We’d love to have a little bit more clarity in regulation,” Silvio Micali, founder of blockchain company Algorand, told CNBC on Wednesday.
Some have expressed some sympathy with the SEC, however, suggesting that the watchdog is just operating within existing rules and that it is up to the U.S. government to change them.
“What are they supposed to do? If all you’re given 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 their job to protect consumers.”
What the SEC says
SEC Chair Gary Gensler addressed a lot of these points in a opinion piece he wrote in The Hill this month, suggesting the regulator has been clear on the rules.
“I find the talking point that there’s a lack of clarity in the securities laws unpersuasive,” Gensler said. “Some crypto companies might message that the laws are unclear rather than admitting that their platforms don’t have sufficient investor protection.”
He laid out instances where crypto firms come under existing securities laws, such as when a company offers lending products.
Gensler also said “crypto intermediaries aren’t exactly lining up to register with the SEC and comply with the laws enacted by Congress.”
The SEC chair said enforcement actions are “another tool” in the regulator’s toolbox to root out “noncompliance.”
U.S. risks falling behind Europe
Executives have warned that the lack of clear regulation in the U.S. could see it fall behind other countries and jurisdictions.
“It’s incumbent, I think, on Congress to actually create a legal regulatory framework that regulates crypto properly, because … crypto is here to stay,” Linch said.
Governments across the globe are weighing up 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 this year to introduce the Markets in Crypto-Assets, or MiCA, regulation, designed to bring some rules in and around digital currency companies.
When asked by CNBC if the U.S. 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 regulations and rules that allow crypto companies and also traditional finance to embrace crypto,” Long said.
The Ripple president referenced MiCA, a law that required the agreement of all 27 nations that make up the EU, calling it “remarkable when the U.S. has one government and they can’t get their act together.”