US Regulators Compete for Crypto Assets Jurisdiction, Exchanges in Trouble

Recently, two major U.S. regulatory agencies took enforcement actions against leading Crypto Assets exchanges, highlighting the complexity and uncertainty of the regulatory environment. The globally renowned exchange Coinbase received a warning notice from the U.S. Securities and Exchange Commission ( SEC ), accusing it of violating securities regulations. Meanwhile, another leading exchange and its founder were accused by the Commodity Futures Trading Commission ( CFTC ) of violating commodity trading regulations.

This situation reflects the escalating jurisdictional dispute between the SEC and CFTC, posing challenges to the operations of crypto assets companies in the United States. Since the collapse of FTX, these two regulatory agencies have taken a more proactive and even hostile stance towards the encryption industry, asserting their jurisdiction through enforcement actions.

Former White House Chief of Staff Mick Mulvaney commented: "If people want to know what the attitude was at the beginning of the year, now they know it is hostile. I think FTX is not the reason, but an excuse."

Since the beginning of this year, the SEC has initiated a series of lawsuits against multiple Crypto Assets companies and individuals. This includes accusations that certain exchanges and lending platforms provided unregistered securities services, as well as market manipulation charges against individuals. Some industry insiders believe that the SEC is trying to strengthen its jurisdiction claims over the industry through enforcement actions.

However, there are also disagreements within the SEC on how to handle Crypto Assets. SEC Commissioner Hester Peirce has publicly opposed several actions related to encryption, believing that the SEC should provide a compliance pathway for the industry rather than taking enforcement actions afterwards.

At the same time, the CFTC's lawsuit against a well-known exchange specifically mentioned that popular Crypto Assets like Bitcoin and Ethereum are commodities. CFTC Chairman Rostin Benham stated that this should serve as a warning to the digital asset industry, as the CFTC will not tolerate willful evasion of U.S. law.

In the absence of clear directives from Congress regarding regulatory responsibilities, Crypto Assets companies have to work hard to anticipate possible complaints from two regulatory agencies. However, due to the lack of specific guidelines for Crypto Assets, this has become exceptionally difficult.

Some crypto assets companies have expressed frustration over the fierce criticism from regulators, as they have been trying to engage with the SEC and CFTC to seek clearer and more comprehensive rules. Coinbase's Chief Legal Officer Paul Grewal stated that their interactions with the SEC are more like a "one-sided monologue" rather than a dialogue.

Industry insiders believe that a better solution would be for the U.S. Congress to enact comprehensive Crypto Assets legislation. While regions like the European Union are advancing related legislation, the U.S. is lagging behind in this regard. Former Congressman Mulvaney stated that it is unlikely to pass comprehensive Crypto Assets legislation this year before the 2024 presidential election.

Regulatory uncertainty may lead Crypto Assets companies to withdraw from the United States. Some companies have already announced the establishment of headquarters overseas or the launch of offshore exchange platforms. Small Crypto Assets companies are also developing contingency plans, with some even halting recruitment in the United States.

SEC Commissioner Peirce emphasized that the goal of regulators should be to facilitate safe technological experimentation, rather than pushing the industry overseas. She called on all parties to "talk like adults" and work together to find solutions.