SEC and the Future of Crypto Startups – Looking Good

• Historically, the SEC adopted a harsh, enforcement-centric approach toward cryptocurrencies
• Recent events such as Gary Gensler’s resignation and establishment of the Crypto Task Force suggest a shift toward a more business-friendly regulatory environment for digital assets
• Over the past few years, a good deal of crypto startups and businesses have either shut down or paid a fine of some sort

Marty Party, the crypto commentator and music producer, shared on X an optimistic view on the US Securities and Exchange Commission (SEC) and the future of crypto startups.

The post focuses on the regulatory shifts currently underway within the SEC related to digital assets. 

He recalls how the agency had previously adopted a stringent, enforcement-centric approach toward cryptocurrencies. This was especially true under former SEC Chair Gary Gensler. 

The lack of clarity in rules made it difficult for startups to navigate this environment, deterring many from entering the space due to fears of legal repercussions and challenges in securing legal representation or banking services.

However, a wave of optimism in the crypto world started to spread in recent times. 

For instance, Gensler resigned as SEC Chair in January, and US President Donald Trump nominated Paul Atkins, a known advocate for free markets and digital assets, as his successor. 

In addition, acting SEC Chair Mark Uyeda and Commissioner Hester Peirce have established a dedicated Crypto Task Force. This initiative aims to develop clear guidelines for digital asset issuance, moving away from the previous enforcement-heavy approach.

All of this suggests a shift toward a more business-friendly regulatory environment for digital assets.

SEC’s Past Actions and Their Impact

To illustrate the previous, tougher stance, consider the past few years. Several crypto businesses ran into trouble with the SEC.

In February 2023, the SEC charged cryptocurrency exchange Kraken for offering unregistered securities through its staking services. This ended with Kraken paying a $30 million settlement and ceasing its staking operations in the US.

Coinbase, a major cryptocurrency exchange, faced a Wells notice from the SEC in March 2023, indicating potential enforcement actions over its staking products. The SEC subsequently sued Coinbase in June 2023, alleging it operated as an unregistered broker and exchange since 2019. 

In May 2023, Flint Money, an Indian decentralized finance startup backed by Sequoia Capital and Coinbase, shut down its operations in the US. The shutdown was directly linked to regulatory concerns. These concerns, it was argued, created a tough environment for its services.

In July 2023, Pillow, a crypto investment platform, announced it would discontinue its services.

The decision was primarily driven by regulatory uncertainties and a challenging business environment, despite raising $18 million in a Series A funding round just eight months prior.

The takeaway, however, is positive in that the regulatory situation is undergoing changes. Specifically, there is a transition in SEC leadership, and these developments suggest a possible easing of the strict regulatory environment that previously led to the shutdown of several crypto startups.