Crypto companies are frustrated with the U.S. government for not having clear regulations for the industry and the Securities and Exchange Commission for acting aggressively against digital currency companies, according to several executives who spoke to CNBC.
Unlike other countries, the US has not yet created a comprehensive framework or regulations that allow cryptocurrency and blockchain companies to operate without fear of being targeted by regulators.
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Meanwhile, since the collapse of crypto exchange FTX last year, the US SEC has taken enforcement actions against the company.
On Wednesday, the SEC sent the Coinbase exchange a Wells notice, warning the company that it has identified potential violations of US securities laws. The SEC also announced fraud and unregistered securities charges against crypto founder Justin Sun and celebrities who supported the digital currency.
The SEC is currently in legal disputes with several other companies including Ripple, Genesis and Gemini.
“It doesn’t feel collaborative,” 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 the players who have done the right thing.”
Joe Lubin, CEO of ConsenSys and co-founder of Ethereum, told CNBC that he thought the ecosystem was “generally frustrated.”
“I think we continue to watch the SEC play this game to punish those who are still alive. And it’s a little bit, you know, something disturbing to watch,” said Nicolas Cary, president of Blockchain. com, told CNBC on Friday.
Much of what the SEC does involves enforcing existing regulations on the crypto industry, which was formed decades after the Howey Test – one of the key tests to determine whether or not a security exists.
Many in the crypto industry feel this is not the right path.
“Where I think you have a less successful regulatory regime 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, none of that stuff. It’s crypto,” Oliver Lynch, CEO of Bittrex Global, told CNBC on Wednesday.
The SEC was not immediately available for comment when contacted by CNBC.
‘clarity’
CNBC spoke to many executives in the field at Paris Blockchain Week, one of the most prominent crypto conferences in Europe, and one request executives made for US regulators was the need for clarity.
“We would love to have more clarity on regulation,” Silvio Micali, founder of blockchain company Algorand, told CNBC on Wednesday.
Bitcoin has had a strong start to the year with the cryptocurrency seeing a big rally.
Jakub Porzycki Nurphoto Getty Images
Some have expressed sympathy for the SEC, but point out that the watchdog is only operating under existing rules and that it is the US government’s responsibility to change them.
“What’s to be done? If you’re only given a hammer, the whole world looks like a nail,” said Bittrex Global’s Linch.
Blockchain.com’s Cary said the SEC is “trying to do its job to protect consumers.”
What the SEC said
SEC Chairman Gary Gensler made many of these points in an opinion piece he wrote on the Hill this month, suggesting that the regulator is clear on the rules.
“I find the point of saying that there is a lack of clarity in securities law unpersuasive,” Gensler said. “Some crypto companies can message that the law is unclear rather than admit that their platform does not have enough investor protection.”
He provided examples of where crypto companies fall under securities laws, such as when companies offer loan products.
Gensler also said that “crypto intermediaries are not eligible to register with the SEC and comply with laws enacted by Congress.”
The SEC chairman said enforcement action is “another tool” in the regulator’s toolbox to root out “noncompliance.”
US risk declines in Europe
Executives have warned that the lack of clear regulations in the US could see other countries and jurisdictions.
“It’s incumbent, I think, on Congress to create a legal regulatory framework that properly regulates crypto, because … crypto is here to stay,” Linch said.
Governments around the world are considering how to regulate crypto. Places like Switzerland and Dubai have marketed themselves as crypto-friendly destinations with good regulation.
Meanwhile, the European Union is scheduled this year to introduce the Market in Crypto-Assets, or MiCA regulation, which is designed to bring some rules in and around digital currency companies.
When asked by CNBC if the US is at risk of withdrawing from 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 very clear regulations and rules that allow crypto companies as well as traditional finance to embrace crypto,” Long said.
President Ripple referred to MiCA, a law that requires the approval of all 27 countries that make up the EU, calling it “very good when the US has a single government and cannot act together.”