WSJ: Trump's Return to Power Could Calm the Wave of Crypto Lawsuits
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WSJ: Trump's Return to Power Could Calm the Wave of Crypto Lawsuits
U.S. regulators attempted to regulate the cryptocurrency market with what they called their "most powerful weapon," but now they may be preparing to "lay down their arms."
Navigating Web3 tides with focused insightsSource: The Wall Street Journal
Translation: Bitpush News
Last year, the U.S. Securities and Exchange Commission (SEC) sued cryptocurrency exchanges Binance, Coinbase, and Kraken, accusing these platforms of conducting unregistered securities sales. However, crypto executives have refused to comply with financial regulations they believe are unsuitable for digital currencies.
On one side is the crackdown led by current Chair Gary Gensler; on the other, the crypto industry’s call for new, crypto-specific regulations and a more lenient regulatory approach. If the SEC prevails in court, its victories would force the free market to adhere to long-standing institutional rules designed to protect investors who purchase securities. But these lawsuits could take many years to resolve, and with Donald Trump’s return to power, Gensler may no longer have time to see these major cases through.
Trump’s return to the White House signals a new era for cryptocurrencies—one with fewer government barriers.
The president-elect has moved past his earlier skepticism toward digital assets, promising support for the digital asset industry. He also intends to limit the independence of agencies such as the SEC and the Federal Reserve. Crypto industry leaders have welcomed his return.
The next SEC chair may offer favorable resolutions to cryptocurrency exchanges. One lawyer viewed as a potential successor to Gensler has positioned himself as a critic of Gensler’s litigation strategy. Former SEC General Counsel Robert Stebbins said the agency should pause most of its crypto-related lawsuits and clear a path for companies to operate without the uncertainty of ongoing litigation.
"As long as there are no fraud allegations, my sense is that the commission might dismiss these cases in the future," Stebbins said.
Other candidates on Trump’s shortlist include former SEC commissioner Paul Atkins and former Coinbase chief legal officer Brian Brooks, both of whom declined to comment.
Dismissing the lawsuits would mark the end of an adversarial stance toward the crypto industry—a confrontational approach that began in 2017 during Trump’s first term, when a wave of new digital assets flooded the market and were sold to the public without restrictions. During his early presidency, Trump was critical of cryptocurrencies, once saying their value was "based on nothing."
Toward the end of Trump’s first term, the SEC filed a lawsuit against Ripple Labs for selling $1.3 billion worth of the cryptocurrency XRP. Last year, the SEC lost that case—an important setback for the agency in its enforcement efforts.
In the early days of the Covid pandemic, the rise of cryptocurrency exchanges made it easier for a new wave of amateur traders to enter the market, driving digital currency prices to record highs.
Gensler shifted the SEC’s focus from hundreds of token issuers to these exchanges and similar intermediaries.
He believed this was a more effective way to address widespread noncompliance. Previous SEC investigations had resulted in dozens of settlements with smaller market participants but failed to stop exchanges from listing numerous new tokens on their platforms.
In 2022, the sudden collapse of crypto exchange FTX and the successive failures of crypto lending firms seemed to validate Gensler’s warnings about the fast-growing, unregulated market. Due to fraud and poor risk management within the industry, individual investors lost billions of dollars on their holdings.
Months after FTX’s collapse, the SEC issued its harshest charges yet, accusing Coinbase, Kraken, and Binance of operating unlicensed exchanges by selling securities without complying with investor protection laws.
While some smaller companies chose to settle with the SEC, major exchanges saw settlement as an unviable option. For them, settling under SEC terms would amount to defeat. For example, Coinbase would be forced to delist many of the digital currencies it trades and discontinue services such as staking—where traders earn additional returns by holding tokens. Other SEC rules would prohibit exchanges from holding customer assets, effectively forcing them to split their businesses into separate entities.
Crypto companies argue that investment regulations designed for Wall Street do not apply to digital tokens intended to operate via peer-to-peer computer networks. For instance, Coinbase claims that most cryptocurrencies resemble commodities or collectibles, comparing them to baseball cards or Beanie Babies.
Gensler is set to leave office next month, and some of the SEC’s legal arguments have been accepted at the early stages of litigation. In one recent victory, a federal judge in San Francisco rejected Kraken’s key argument and accepted the SEC’s framework for determining which investments qualify as securities.
"Courts have consistently affirmed our actions to protect investors and rejected all arguments claiming the SEC cannot enforce the law when securities are issued—regardless of the form those securities take," Gensler said in a recent speech.
Other judges have expressed reservations.
This summer, U.S. District Judge Amy Berman Jackson in Washington, D.C., wrote while dismissing part of the SEC’s case against Binance: "The agency’s decision to regulate this multi-billion-dollar industry through litigation—case by case, coin by coin, court by court—may not be an efficient method and could lead to inconsistent outcomes."
Some experts say the SEC has cast itself as a patrol cop, wasting valuable time that could have been spent creating a new set of rules to provide clearer protections for investors and consumers. Sarah Hammer, executive director at the University of Pennsylvania’s Wharton School, said, "This is not the right approach."
In a November speech, Gensler said he was merely continuing the strategy used by former SEC Chair Jay Clayton during Trump’s first administration.
Others argue that Gensler had no choice but to use enforcement actions against crypto firms he believed were violating securities laws. Marc Fagel, former director of the SEC’s San Francisco office, said that if Gensler had instead chosen to create new industry regulations, companies likely would have challenged them anyway, ultimately leading to the same courtroom battles.
"Any rule that isn’t 100% acceptable to the crypto industry will be buried in litigation," Fagel said.
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