Analysis of SEC’s “Trigger” for Launching Crypto War and 5 Possible Outcomes

SEC's "Trigger" for Crypto War Analysis and 5 Potential Outcomes

Article “The SEC Comes for Crypto”, translated by Odaily Planet Daily jk.

The original author of the article, Matt Levine, is a Bloomberg opinion columnist responsible for financial reporting. He was the editor of Dealbreaker, worked in Goldman Sachs’ investment banking department, served as a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and served as an assistant judge on the US Third Circuit Court of Appeals.

Editor’s note: Matt Levine’s writing style is extremely friendly to newcomers. This article was written after the SEC sued Binance; one of the fundamental disagreements between the SEC and Binance, and the core argument discussed in this article, is whether cryptocurrencies are securities. If it is a security, then Binance and all other exchanges operating in the US must register the securities provided to investors with the SEC. If it is not a security, there is no need to register. Currently, all exchanges operating in the US have not registered with the SEC. Therefore, if the court rules that tokens are securities, the SEC will win, and vice versa.

Disclaimer: The following does not represent the views of Odaily Planet Daily and does not constitute investment advice. The cover picture is from Marvel.

• Viewpoint: Why the US Congress should regulate cryptocurrency
• Reflections on the SEC’s lawsuit against Binance: What are the reasons behind the controversy?
• Analysis: What are the common characteristics of cryptocurrencies listed as securities by the US SEC?

SEC sues Crypto leader

“Now there is a basic standard, that all cryptocurrency exchanges are committing crimes, and if you’re lucky, the exchange you use is only committing crimes in procedure (not in result).” Why? Examples are as follows:

Is your exchange operating an illegal securities exchange in the United States? Yes! It is! At least according to the SEC, every cryptocurrency exchange in the United States is illegal . You may not agree with this view-many executives of cryptocurrency exchanges do not agree, and we will discuss these arguments in detail below-but from a realistic perspective, if you are conducting cryptocurrency transactions, you are not fully complying with US securities laws.

Is your exchange stealing customer funds? Maybe! Some are, but some are not. If you are a customer, this is the issue you should be most concerned about.

Operating an illegal securities exchange and stealing customer funds are related, but they are two different things. “Oh, I shouldn’t entrust my money to those who violate US law”: Of course, yes, this is a reasonable position that can help you avoid many cryptocurrency disasters, but it will also make you completely unable to trade cryptocurrencies. This is your choice!

I may be exaggerating the principle explanation of all this a bit–but not by much.

Yesterday, the US Securities and Exchange Commission (SEC) sued Binance, the world’s largest cryptocurrency exchange, and its founder, Changpeng Zhao, for allegedly operating an illegal securities exchange. Today, the SEC has filed a lawsuit against Coinbase Inc., the largest cryptocurrency exchange in the United States, for allegedly operating an illegal securities exchange.

There are basically two ways in which cryptocurrency exchanges can get into disputes with the SEC. One good way is to get into trouble for operating an illegal securities exchange (i.e., offering unregistered securities). In April of this year, the SEC sued Bittrex Inc. for allegedly operating an illegal securities exchange; any reasonable interpretation of the Bittrex case can make it clear that similar cases will also be filed against Coinbase and Binance. In the SEC’s view, any cryptocurrency exchange in the United States is illegal.

The other bad way is to get into trouble for stealing customer funds. In December of last year, the SEC sued a large cryptocurrency exchange, FTX Trading Ltd. This is the SEC’s accusation against FTX. I can say with great certainty that the SEC believes that FTX is indeed operating an illegal securities exchange in the United States. But this was not mentioned in the indictment–because there were too many other issues to deal with. FTX is alleged to have stolen all of its customers’ funds; when an exchange steals funds, the SEC focuses on that. When not all funds are stolen, the SEC focuses on the issue of illegal securities exchanges.

So, for this week’s cases, one question is: Did the SEC sue Coinbase and Binance because they are cryptocurrency exchanges, or because they are evil cryptocurrency exchanges? Is the accusation here “you allow people to trade cryptocurrencies, which we believe is illegal,” or “you attract people to trade cryptocurrencies and steal their capital”?

For Coinbase, I think the answer is obvious. Compared to other cryptocurrency exchanges, Coinbase is very compliant with the law. It is a publicly traded US company registered in Delaware and listed on Nasdaq. It went public in 2021 and submitted detailed disclosure documents to the SEC. Its financial statements are audited by Deloitte. Its business model seems to be to receive funds from customers, use these funds to purchase cryptocurrencies, and securely store the cryptocurrencies in accounts named after customers. I dare not make any bold assertions about any cryptocurrency participants, and I have made mistakes in the past, but I do not believe that Coinbase has stolen customers’ funds.

Actually, the SEC’s charges against Coinbase are quite boring and entirely focused on the fact that Coinbase was not registered as a securities exchange. Again, in the eyes of the SEC, every cryptocurrency exchange has violated U.S. securities law. But relatively speaking, Coinbase’s transgressions are polite and relatively harmless. Not completely harmless, mind you — the SEC says, “Coinbase’s unregistered conduct deprived investors of important protections, including SEC oversight, recordkeeping requirements, and safeguards to prevent conflicts of interest.” But the impact is relatively small.

For Binance, the answer is more interesting. As far as cryptocurrency exchanges go, Binance has a little bit of a reputation for playing fast and loose with the law — it’s opaque, its headquarters location is uncertain, and it aims to avoid a tangled web of regulations. (The SEC quotes its chief compliance officer as saying in 2018, “We don’t want [Binance] to be regulated, ever.”) Like FTX, it has its own token — BNB; it has its own affiliated trading companies; it offers separate platforms for U.S. customers (Binance.us) and customers in the rest of the world (Binance.com). It was sued by the U.S. Commodity Futures Trading Commission in March largely for allowing large U.S. customers like Jane Street and Tower Research, among other high-frequency market makers, to trade on its Binance.com exchange through its offshore affiliate, and the CFTC’s complaint also mentioned issues with terrorist financing.

Similarly, the SEC’s charges against Binance claim to have caught some evidence of Binance engaging in improper behavior. Binance has some affiliated market makers, including companies like Sigma Chain AG and Merit Peak Ltd. that are said to be controlled by Zhao, and that trade on Binance’s Binance.com and Binance.us. The SEC implies that they engaged in suspicious activities:

For example, as of 2021, at least $145 million was transferred from BAM Trading (i.e., Binance.us) to Sigma Chain accounts, and an additional $45 million was transferred from BAM Trading’s Trust Company B account to Sigma Chain accounts. Sigma Chain spent $11 million from the account to buy a yacht. (For illustration only, no actual evidence)

And from September 2019 to June 2022, trading firm Sigma Chain AG (hereinafter “Sigma Chain”) owned and controlled by Zhao conducted wash trading, artificially inflating the trading volume of cryptocurrency securities on Binance’s U.S. platform.

Furthermore, the SEC also claimed that Zhao Changpeng and Binance exercised control over customer assets on the platform, allowing them to commingle customer assets or transfer customer assets at will, including to Sigma Chain, a company owned and controlled by Zhao Changpeng.

However, the SEC did not emphasize these allegations too much, and most of Binance’s allegations are the same as Coinbase’s allegations: Binance is accused of operating a cryptocurrency exchange that is open to US customers and listed some cryptocurrencies that were deemed securities without registering as a US securities exchange. I tend to see yesterday’s lawsuit as SEC’s recognition of Binance. The SEC, as well as the previous CFTC, conducted a thorough investigation of Binance and wrote a 136-page complaint (Odaily Planet Daily’s in-depth analysis of the complaint) , but the only issue they could find was that Binance was simply operating a cryptocurrency exchange.

Although the arguments in the two complaints are mostly the same, Coinbase’s and Binance’s attitudes are completely different. The key legal issue (which we will discuss below) is whether the cryptocurrencies listed on Binance and Coinbase are securities. If they are classified as securities, then it is likely that Coinbase and Binance (as well as Bittrex and all other exchanges) are operating illegal securities exchanges; if they are not securities, then everything is okay. Coinbase realizes that this is a potential risk and has established committees and procedures to think about and mitigate this risk. The following is a description from the SEC’s allegations against Coinbase:

Given that at least some cryptocurrencies are offered, sold, and distributed by identifiable groups of people or promoters, Coinbase publicly released the “Coinbase Cryptocurrency Framework” in or around September 2018, which includes an application form for cryptocurrency issuers and promoters to apply to list their cryptocurrencies on the Coinbase platform.

Coinbase’s listing application requires issuers and promoters to provide information about their cryptocurrencies and blockchain projects. It explicitly requires information related to Howey analysis of cryptocurrencies.

In addition, in or around September 2019, Coinbase and other cryptocurrency businesses founded the “Cryptocurrency Rating Council” (CRC). The CRC subsequently released a framework for analyzing cryptocurrencies that “distills a set of concise yes or no questions designed to provide clear answers to the four elements of the Howey test” and assigns cryptocurrencies a score from 1 to 5, where 1 represents “the asset has almost no or no characteristics that would be typical of an investment contract” and 5 represents “the asset has multiple characteristics strongly indicative of an investment contract.”

When announcing the establishment of the CRC, Coinbase stated: “Although the SEC has issued helpful guidance, determining whether any given cryptocurrency is a security ultimately requires a fact-based analysis.” (Meaning, it ultimately depends on the opinions of the SEC and the courts.)

Very responsible, right? Even so, the SEC disagreed with Coinbase’s conclusion and raised some objections to its process:

During the period from the end of 2019 to the end of 2020, the number of cryptocurrencies traded by Coinbase on the Coinbase platform more than doubled, and it doubled again in 2021. During this period, Coinbase offered cryptocurrencies that scored high under the CRC framework on the Coinbase platform. In other words, in order to achieve exponential growth of the Coinbase platform and increase its own trading profits, Coinbase made strategic business decisions to add these cryptocurrencies to the Coinbase platform, even after realizing that they had securities characteristics.

Meanwhile, here is how Binance’s “outstanding” compliance director describes the fact-based analysis of whether Binance has listed securities tokens in the United States:

As Binance’s compliance director candidly admitted to another Binance compliance officer in December 2018, “We’re operating a [unlicensed] securities exchange in the US, brother.”

This angle is much clearer! Coinbase has hired many lawyers, conducted a lot of analysis, and written many checklists to convince itself that it is legally operating a cryptocurrency exchange in the United States. Binance’s attitude is “this may be illegal in the United States, well, I don’t care.” The SEC fully agrees with Binance’s view (that both are illegal).

This may be good news for Coinbase: it may be able to appear in court as a well-intentioned actor who is trying to comply with the law, while Binance looks like a malicious actor trying to ignore the law; Coinbase may win in the SEC lawsuit, while Binance may fail. But I have to say that so far, Binance’s practice seems more sensible. Binance noticed that operating a cryptocurrency exchange in the United States is likely to be illegal, but still did so, but it maximally reduced and separated its risks in the United States: its customers in the United States are relatively few, and It seems to have put most of its business outside the United States. Coinbase, on the other hand, is working hard to operate a legal and regulatory-compliant cryptocurrency exchange in the United States, and now the SEC says it is impossible. If the SEC is right, what is left for Coinbase’s business?

What is a security, really?

Alright, let’s talk about the basic theory that the SEC has put forth here, which we’ve already discussed when the SEC sued Bittrex:

1. If you operate an exchange that offers securities trading in the United States, you need to register with the SEC as a securities exchange.

2. The cryptocurrencies offered by Binance and Coinbase are securities.

3. They did not register their exchanges in the United States as securities exchanges.

4. Bad!

The first point is a bit more complicated than it might sound; for example, there are some stock trading venues that don’t register as securities exchanges, instead registering as other types of organizations under different rules. But from the SEC’s perspective, what’s important is that the rules of the securities exchange can protect investors. Specifically, they often require separation of three key functions that are often merged in cryptocurrencies, including the exchange that matches buyers and sellers, the broker/dealer who represents clients in trades on the exchange, and the clearinghouse that actually moves the money and securities. In the stock market, you can place an order on Robinhood’s website to buy stocks at the New York Stock Exchange, and the Depository Trust Co. holds the stocks and settles the trades. In the cryptocurrency market, you can place an order on Coinbase’s website to buy cryptocurrency on Coinbase, and Coinbase holds the cryptocurrency and settles the trades.

But the focus here is on the third point: are cryptocurrencies considered securities? The SEC’s basic view is that most cryptocurrencies — not all, but most — fall under the definition of securities under U.S. law. Coinbase clearly disagrees with that characterization for many of them. The particular issue in dispute here is whether a set of popular cryptocurrencies, including Solana’s SOL, Cardano’s ADA, Polygon’s MATIC, Filecoin’s FIL, Decentraland’s MANA, Algorand’s ALGO, Axie Infinity’s AXS, and Voyager Digital’s VGX, are classified as securities, with the SEC mentioning their listing on Binance and/or Coinbase.

The U.S. securities law defines “security” to include, but not be limited to, “stocks,” “certificates of interest or participation in a profit-sharing agreement,” “preorganization certificates or subscription,” “transferable shares,” “investment contracts,” [or] “voting trust certificates.” The most commonly used term is “investment contract,” which was interpreted by the U.S. Supreme Court in the famous 1946 case SEC v. W.J. Howey Co.

According to the “Securities Law,” an investment contract refers to a type of contract, transaction, or scheme in which an individual invests funds in a joint enterprise and anticipates obtaining profits purely through the efforts of the promoter or a third party, regardless of whether the enterprise shares are evidenced by formal certificates or by nominal equity interests in physical assets. This definition… makes it possible to require “full and fair disclosure of the many instruments that belong to the securities common concept in our business world” based on legal purposes… It embodies a flexible rather than static principle that can accommodate countless and varied schemes designed by those seeking to use other people’s funds to obtain profits through the commitments of others.

Investors provide capital and share in earnings and profits, while promoters manage, control, and operate enterprises. Therefore, regardless of the specific legal terminology used to arrange these investors’ interests, investment contracts are involved.

The key is whether the scheme involves investing funds in a joint enterprise and whether the profits come entirely from the efforts of others. If this test is satisfied, then whether the enterprise is speculative or non-speculative, whether there is a sale of property with or without intrinsic value, is irrelevant.

This has led to the “Howey test,” in which the court will inquire whether the following exist: (1) investment of funds; (2) in a common enterprise; (3) expectation of profits; and (4) profits to come solely from the efforts of others. The SEC has maintained since 2017 that most crypto enterprises meet this description.

Taking Solana as an example, Solana is a blockchain that runs crypto applications, and its native token is called SOL. Here is the SEC’s explanation of Solana:

“SOL” is the native token of the Solana blockchain. The Solana blockchain was created by Solana Labs, Inc. (hereafter referred to as “Solana Labs”), a Delaware company headquartered in San Francisco, founded by Anatoly Yakovenko (hereafter referred to as “Yakovenko”) and Raj Gokal (Solana Labs’ current CEO and COO) in 2018. According to Solana’s website, www.solana.com, the Solana blockchain is a network that can build decentralized applications (dApps), consisting of a platform that aims to improve blockchain scalability and achieve high transaction speeds, using a combination of consensus mechanisms.”

According to Solana’s website, SOL can be “staked” on the Solana blockchain to earn rewards, and when making transactions on the Solana blockchain, a small amount of SOL must be “burned.” This is a common function of native tokens on blockchains and is used to avoid potential bad actors from “spamming” a blockchain with an infinite number of proposal transactions through cryptographic distributed ledgers.

Solana Labs is selling SOL tokens to raise funds for building the Solana ecosystem:

Solana Labs has publicly stated that the proceeds from the private and public sales of SOL will be pooled into a comprehensive cryptocurrency asset wallet that it controls and will use these funds to develop, operate, and market the Solana blockchain in order to attract more users to use the blockchain (as those who wish to interact with the Solana blockchain need to provide SOL, this could increase the demand and value of SOL itself). For example, during the private sale of SOL in 2021, Solana Labs publicly stated that it will use investors’ funds to: (i) hire engineers and support staff to help develop Solana’s developer ecosystem; (ii) “accelerate the launch of market-ready applications that bring a billion users into the crypto space”; (iii) “launch an incubation studio to accelerate the development of decentralized applications and platforms built on Solana”; and (iv) establish a “venture capital division” and “trading division” that are dedicated to the Solana ecosystem.

Howey Test:

1. Was there an investment of money? Yes, SOL tokens are being sold in exchange for currency to raise funds for building Solana.

2. Was there a common enterprise? Yes, Solana is an enterprise; it is a blockchain ecosystem that competes with Ethereum, Cardano, and others, and aims to attract users.

3. Was there an expectation of profits? Yes, people buy SOL with the hope that its price will rise, and it has in fact risen.

4. Were the profits derived from the efforts of others? Yes, the price increase of SOL is due to the efforts of its promoters and developers in making Solana a popular blockchain, which increases the demand for SOL.

These are typically difficult questions to answer. Most large cryptocurrency blockchains are somewhat decentralized; Solana’s growth depends not only on the efforts of Solana Labs, but also on the efforts of third-party users and developers who like to use it. For some cryptocurrencies, it can be reasonably argued that people purchase tokens not as an investment with an expectation of profit, but rather to transact and pay on the blockchain; SOL tokens are the “fuel” used for running programs and transactions on the Solana blockchain, and if purchased purely as a “utility token,” it could be argued that it is not a security. Most cryptocurrency tokens have both utility value and speculative investment features, which makes analysis complex.

Furthermore, even if you buy SOL as a speculative investment, it’s unclear whether you’re buying it to share in the profits of the underlying enterprise. Your thought process might be “If I buy SOL and lots of other people buy SOL, the price will go up and I can make money.” That’s not an expectation of profit from the efforts of others; it’s an expectation of profit from speculative fervor and online memes. We talked yesterday about Dogecoin, a joke cryptocurrency whose creators openly promised not to take any action to build an ecosystem; people bought Dogecoin because they thought other people would buy Dogecoin. I personally think this means that Dogecoin is not a security; a purely meaningless token whose value is based on “the efforts of others” is not enough to qualify. (No doubt Beanie Babies toys are not securities, for example.) And even in the case of a crypto project that does promise effort, an ecosystem, and hardworking, smart developers, many people’s purely reasons for buying tokens may be the same as their reasons for buying Dogecoin: to ride the digital wave up.

But I like to think of the relationship between crypto and securities as most crypto tokens being obviously similar to stocks in some underlying tech business to some degree. In Solana (and Cardano, Polygon, etc.), the underlying business is a platform business, a blockchain ecosystem for building applications, primarily financial services applications, primarily for trading cryptocurrencies. Everyone buying these tokens is a quasi-shareholder in that business in some loose sense. They earn returns in the same way as traditional shareholders: stock buybacks. And in crypto parlance, stock buybacks are called “burns.”

Furthermore, Solana Labs promotes its “burning” of SOL tokens as part of its “deflationary model.” As explained by Yakovenko in an April 14, 2021 article on gemini.com titled “Solana (SOL): Extending cryptocurrency to the masses”: “Solana’s transaction fees are paid in SOL and are deflationary through burning (or permanently removing) as a deflationary mechanism to reduce total supply and thereby maintain a healthy SOL price.” As explained on the Solana website, the “current total supply” of SOL has decreased since the launch of the Solana network through burning of transaction fees and planned token reduction activities. This marketing of SOL’s burning as part of the Solana network’s “deflationary mechanism” gives investors reason to believe that their purchase of SOL has profit potential because the built-in mechanism can reduce supply and thus increase the price of SOL.

In the Binance lawsuit, the U.S. Securities and Exchange Commission (SEC) cited Zhao Changpeng’s description of Binance’s BNB token destruction mechanism:

In fact, in an interview posted on YouTube on July 9, 2019, Zhao Changpeng described Binance’s planned BNB destruction. He said, “The benefit we promised in the white paper is that every quarter we will use 20% of the profit to repurchase [BNB] at market value…We will repurchase and destroy these tokens. We will destroy up to 100 million BNBs. Essentially, it’s half of all available tokens…Financially, it’s the same way as dividends in the economy.”

I mean, I would say it works the same way as stock buybacks , but of course dividends and stock buybacks are essentially equivalent. The key is that in a crypto project, shareholders (sorry, token holders) share in the project’s profits when a portion of the income is used to repurchase and destroy tokens, thereby increasing the value of the remaining tokens, just like stock buybacks.

One way to understand crypto-economics is that cryptocurrencies have built a new way to sell stock in promising technology and financial companies without calling it stock. For example, if you were starting a cryptocurrency exchange and wanted to raise money, you could offer investors stock in your company. If the business operates well, there will be a lot of profit (from transaction fees charged to customers), and you will share these profits with investors. But there are problems with this:

1. If you sell shares to the public, you will need to register with the SEC.

2. If you sell shares to large venture capitalists, they will need to register for resale with the SEC or find an exemption from SEC registration in some other way.

3. In either case, you may need to provide some financial information about the business to investors to get funding.

4. Shareholders may want voting rights, ongoing financial disclosure, etc., which are customary and often required by law.

Or, if you’re starting a cryptocurrency exchange, you can go find investors and offer them tokens in your business. If the business operates well, there will be a lot of profit (from transaction fees charged to customers), and you will share these profits with investors (by buying and destroying tokens). This is very nice:

1. If you sell tokens to the public, you can declare that they are not securities and do not need to be registered with the SEC.

2. If you sell tokens to large venture capital companies, they can declare that these tokens are not securities and can be freely resold.

3. You will write a white paper to sell tokens, which does not necessarily need to contain a lot of financial or operational details.

4. You can give tokens any rights you want.

I may be a little unfair. I’m describing a pure regulatory arbitrage; Binance’s BNB token or FTX’s FTT token is a pure substitute for stocks, issued by a company to raise funds for centralized business. Many cryptocurrency projects are not exactly like this; in some projects, people are idealistic about building a decentralized ecosystem that does not belong to any company, and selling tokens can be a way to create and fund projects without owners, an economic model that is really different from what shareholders own in a company. But in many cases, the cryptocurrency ecosystem seems to be built by a fairly centralized team, and tokens are seen as stocks of a promising new technology company, with a promising idea launched by a promising team.

You can see why cryptocurrency people like this! It combines regulatory arbitrage with exciting philosophical novelty. You can also understand why the SEC doesn’t like this situation! The SEC knows all about “the countless and varied schemes that are seeking to use the funds of others in order to promise profits.” The SEC is the regulatory agency that is bypassed in arbitrage. And it clearly doesn’t like that.

What happens after the SEC sues?

Principle here are several possible outcomes:

1. The SEC wins and cryptocurrencies are more or less banned in the United States. You can still buy Bitcoin, Ethereum, and possibly Dogecoin in the United States because they are not securities, but any other cryptocurrency projects may be considered securities and cannot be traded in the United States. Cryptocurrencies gradually decline and die out, and people turn to artificial intelligence. The SEC kills cryptocurrencies in a slow and revengeful way, because cryptocurrencies try to bypass the SEC’s regulation.

2. Situation is the same, except that cryptocurrencies have grown elsewhere in the world, and the US has missed out. Cryptocurrencies have proven to be of tremendous world-changing value, yet the US has fallen behind in the competition. Or perhaps cryptocurrencies are proven to be a strange niche financial product that can be traded in Europe but not in the US, like binary options or CFDs. Either way, cryptocurrencies persist elsewhere in the world but fail to flourish in the US.

3. The SEC wins, and then some combination of existing crypto companies, new crypto entrants, and traditional financial services companies find a path to trading cryptocurrencies that is compliant with US securities law. Everyone bends over backwards, saying “well, Solana will start submitting annual reports and audited financial statements,” people will establish cryptocurrency exchanges registered with the SEC, separate from clearinghouses and brokerages, etc. This seems incredibly daunting, because the SEC is clearly uninterested in any crypto project. I’m not going to sit here and tell you “how crypto companies will register their tokens as securities.” Coinbase has certainly been trying to figure out how to do this, constantly “harassing” the SEC for regulatory approvals, but so far, their luck hasn’t been great. But I think it’s possible.

4. The SEC loses, the court says “what, no, none of this stuff is a security,” and cryptocurrencies continue to trade in the US with minimal securities regulation.

5. Congress (or a future SEC) intervenes to change the rules, saying “of course, according to existing law, all of this is technically illegal, but stifling such innovation is crazy, so we will craft new regulations that allow for regulated trading of cryptocurrencies in the US.”

I don’t know which outcome will happen. The last outcome is what the cryptocurrency industry is hoping for, and Congress seems to have some interest in crafting cryptocurrency rules.

But what I want to say is that the SEC is clearly betting on the first outcome. That’s why these cases are only being brought now, after the implosion of FTX and many other large cryptocurrency companies, after cryptocurrency prices have fallen, after venture capitalists have turned to artificial intelligence. For the SEC, these cases against Binance and Coinbase are high-risk cases: Coinbase and Bitcoin are large companies with ample resources, excellent lawyers, and lobbying teams, they have the resources and incentive to fight all the way to the end, and they actually have pretty decent legal arguments. The SEC might lose! But it is strategically maximizing its chances of winning. I wrote in February:

When cryptocurrencies are popular, exciting, and constantly rising, if you’re a regulatory agency that says “no, we have to stop this,” you look like a buzzkill. Investors want to put their money into something that’s going up, and you’re stopping them, which makes them angry. Politicians like things that are going up and hold hearings about how you’re stifling innovation. Cryptocurrency founders are rich and popular, criticizing you on Twitter and getting lots of likes and retweets. Your own regulators are watching their next move in the private sector, hoping to be leaders of crypto innovation, not just banning everything.

When cryptocurrencies fall and many projects disappear in fraud and bankruptcy, you can say “I told you so (this was a scam).” At that time, people are more willing to regulate or simply ban everything. The founder of a bankrupt crypto company that is being sued can say “you’re stifling innovation,” but no one cares.

This is the bet that the SEC is making right now. We will see if this bet is correct.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!