The SEC Goes to War with Crypto
The SEC has intensified its enforcement campaign — suing exchanges, targeting staking services, and classifying dozens of tokens as securities. Chair Gensler's approach is regulation by enforcement, and it is reshaping the US crypto landscape. Whether it is the right approach is another question.
The SEC Goes to War with Crypto
The Securities and Exchange Commission under Chair Gary Gensler has escalated its enforcement campaign against the crypto industry to an intensity that is unprecedented. The agency has sued Kraken over its staking service, forcing the exchange to shut it down and pay a $30 million fine. It has issued Wells notices to Coinbase and Paxos. It has classified dozens of tokens — including SOL, ADA, MATIC, and ATOM — as unregistered securities. And it has signalled that virtually every crypto asset other than Bitcoin may fall under its jurisdiction.
The message is clear: the SEC views the crypto industry as operating in widespread violation of securities law, and it intends to bring the industry into compliance through enforcement rather than rulemaking.
Regulation by Enforcement
The SEC's approach is "regulation by enforcement" — using lawsuits and enforcement actions to establish legal precedents rather than publishing clear rules that the industry can follow proactively. This approach has several advantages for the SEC: it allows the agency to act without the lengthy rulemaking process, it creates precedents that can be applied broadly, and it puts the burden on defendants to challenge the SEC's interpretations in court.
But it has significant disadvantages for the industry and for the broader goal of investor protection. Companies cannot comply with rules that do not exist. The classification of tokens as securities — determined case by case, after the fact — creates uncertainty that chills innovation and drives activity offshore. And the adversarial posture makes constructive engagement between the industry and the regulator nearly impossible.
The Industry's Response
The industry's response has been a combination of legal defence and political mobilisation. Coinbase has publicly challenged the SEC to provide clear rules, filing a petition for rulemaking that the SEC denied. Ripple is fighting the SEC's lawsuit in court — and winning on key points. And the crypto industry's political spending has increased dramatically, funding PACs, lobbying operations, and relationships with sympathetic legislators.
The legal battles will take years to resolve. But the political battle is moving faster. A growing bipartisan coalition in Congress — including members of both the House Financial Services Committee and the Senate Banking Committee — is pushing for legislation that would provide regulatory clarity and limit the SEC's ability to regulate crypto through enforcement alone.
My View
The SEC's enforcement campaign is doing real damage to the US crypto industry — driving companies offshore, chilling innovation, and creating an adversarial dynamic that serves neither investor protection nor market development. The approach is legally aggressive but strategically counterproductive. The crypto industry needs regulation. It does not need a regulator that treats every participant as a defendant.
The resolution will come through legislation, not litigation. Congress must establish a clear framework that defines which crypto assets are securities, which are commodities, and which are something else entirely. Until that framework exists, the SEC will continue to regulate by enforcement — and the US will continue to lose ground to jurisdictions that have chosen clarity over confrontation.
Regulation by enforcement is not regulation. It is litigation dressed as policy. The crypto industry needs clear rules, not more lawsuits. And the SEC needs a mandate from Congress, not a mandate it has claimed for itself.