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In the Wild West of Crypto, there’s a new Sheriff in town, cracking down on the cryptocurrency space. Rounding up crypto outlaws like CZ “The Nomad” from the Binance Gang for mishandling customer funds and breaking Security rules. The cowboy, Brian “San Jose” Armstrong from the Coinbase Gang is also in the Sherriff’s sight for running an illegal exchange that failed to register as a security. Finally, The baddest outlaw on this side of the Mississippi, Brad “Big Hoss” Garlinghouse from the Ripple Outlaws, leading the rebellion against the Securities and Exchange Commission’s quest for law and order. Garlinghouse, who has been fighting the big bad SEC, since December 2020 was quoted as saying, “When you behave like an autocrat running a $2.2B bloated agency, why would you ever want to provide clarity about what’s ‘in or out?’” To which Sheriff Gary Gensler responded, “We’ve seen the wild west of the crypto markets, rife with noncompliance, where investors have put hard-earned assets at risk in a highly speculative asset class”. Will Sheriff Gensler round up the baddest outlaws in the Crypto Wild West or will there be a shootout at the OK Corral to decide the fate of the cryptocurrency market?
Since being appointed head of the Security and Exchange Commission (SEC), Gary Gensler has been on a mission to reign in crypto. He is formerly co-head of finance at Goldman Sachs, then a chair on the Commodity Futures Trading Commission (CFTC) in President Obama’s administration. The crux of Gensler’s war on crypto is the claim that they are mostly unregistered securities. According to Cornell Law, a security is; Property that is given or pledged to guarantee the performance of an obligation. An instrument that functions as proof of a security interest in a public or private body. A definition that opponents believe is too broad and doesn’t apply to distinct crypto use cases. Gensler used Kim Kardashian to send a message that he will not tolerate celebrity endorsements of crypto tokens like Ethereum Max. Kim Kardashian was then forced to pay $1.26 million to the SEC in 2022. Gensler advises crypto projects to reach out to the SEC to get clarification on security laws but many crypto founders are unclear about the authority that the SEC and CFTC hold over different aspects of crypto.
Brad “Big Hoss” Garlinghouse (CEO) of Ripple (XRP) celebrated his victory over the SEC on July 14, 2023. After being sued by the SEC in December 2020 for selling XRP in an unregistered security offering. The victory represents a new precedent for those seeking to raise money in the crypto space. Judge Analisa Torres ruled that almost all sales do not constitute securities transactions. With that declaration, Ripple is now free to pursue business opportunities that they were prevented from doing because of the pending outcome of the trial. Brad Garlinghouse slammed the SEC in a tweet saying, “An important topic has come up about protecting retail. The SEC created this mess by proclaiming it was the cop on the crypto beat when it had no legal jurisdiction. Where’s that gotten us? Consumers left holding the bag in bankruptcy court while the SEC holds press conferences”. Garlinghouse has no love for the SEC and who can blame him after shelling out $200 million to defend Ripple against the lawsuit?
As the major gunslingers in crypto, do a Mexican standoff with the new Sheriff in town, the only thing certain is that the sun is starting to set on the Crypto Wild West. Maybe this is a good thing, as Garlinghouse, Armstrong, and CZ, fight for the future of the market. Precedents are being set on whether the SEC or CFTC have jurisdiction to bring these lawsuits. The Securities Act of the 1930s may have broadly defined Security, but the current lawsuits will determine if lines of code that perform value transactions fit the example outlined in the Howey test. Otherwise, it could be argued that cryptocurrency is protected speech outlined in the 1st Amendment. It’s also important to note that these lawsuits are suspiciously being filed after the launch of the FedNow Service. FedNow is a new service for instant payments built by the Federal Reserve to help make everyday payments fast and convenient for American households and businesses. The SEC is getting rid of the competition and using their federal powers to dictate winners and losers in the market. “We don’t need more digital currency… we already have digital currency, it’s called the U.S. dollar”, said Gensler. Is this the crypto market’s, “Remember The Alamo”, moment or will the industry be devoured by the creature from Jekyll Island?
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