In the wake of the implosion of multiple crypto operators in 2022, a phalanx of administrative agencies descended upon the industry, declaring it “rife with fraud, scams, bankruptcies, and money laundering.” In an effort to remedy these perceived defects, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) collectively brought more than 200 enforcement actions against crypto industry participants over the course of 2023.
Like an autoimmune response that is unable to distinguish good from bad, the agencies filed lawsuits against both those that skirted the law and those that attempted to comply with it. Among those ensnared by the agencies’ enforcement dragnet were a distributor of uniquely-generated animated cat JPEGs, a decentralized autonomous organization and numerous celebrity “influencers,” including Kim Kardashian, Paul Pierce and Lindsay Lohan.
This post is part of CoinDesk’s “Crypto 2024” predictions package.
The regulators deemed seemingly every industry participant to be running afoul of Depression-era laws with questionable applicability to crypto and dismissed petitions for more fulsome rulemaking. But, as the year winds down, the SEC is nursing two black eyes from losses against Ripple and Grayscale in federal court and the CFTC now seems more interested in settling actions with crypto exchanges than engaging in protracted litigation with them.
If 2023 has been the year of regulation versus decentralization (as I predicted last December), next year may very well be one of regulatory compromises. It is unlikely that Congress will pass comprehensive crypto legislation during an election year, but regulators may opt to pare back a failing regulation-by-enforcement strategy and instead work collaboratively with industry to develop an interim regulatory framework through a combination of notice and comment rulemaking and no-action relief.
Crypto industry participants and regulators have a common interest. Both were caught in the same rug-pull late last year (following FTX’s implosion) and should want to prevent bad actors from once again crippling the good despite the unlikelihood of an immediate legislative solution.
While it is unlikely SEC Chair Gary Gensler will let up on his crusade against the perceived “wide-ranging…
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