SEC pivot marks US digital finance shakeup

On July 31, the U.S. Securities and Exchange Commission’s Chairman Paul Atkins gave a 30-minute speech in which he outlined the SEC’s plans to improve the regulatory climate surrounding the cryptocurrency industry significantly. While the markets didn’t react to it, the crypto community declared Atkins’s speech “the most bullish news for crypto in a decade.”

Project Crypto

Atkins gave the speech at the America First Policy Institute, and the name of this organization aligns well with the title of the speech: “American Leadership in the Digital Finance Revolution.” Right off the bat, Atkins proclaimed that America is in its defining moment in terms of becoming a leader in the crypto assets markets. 

Atkins referred to a complex of actions in the American crypto industry, planned by the SEC, as “Project Crypto.” The main directions of Project Crypto include: 

• Ensuring that the legal status of crypto in the U.S. facilitates innovation and encourages entrepreneurs to work in the U.S. 
• Support for the tokenization trend, moving various markets on-chain
• Paving the way for inclusion of U.S. citizens for participation in airdrops, ICOs, etc
• Bringing together securities and digital assets via the SEC-regulated platforms, or “super-apps”
• Guaranteeing that innovative companies, which don’t fit in the existing rules, will not have to stop their activity while regulators adjust the rules

Such a broad and multifaceted program was met with enthusiasm by American cryptocurrency professionals and experts, as Atkins addressed various long-standing problems in the crypto regulation approach in his speech. Not everything he mentioned will necessarily materialize, but the overall direction received acclaim from industry players.

The next day after Atkins’s speech, the SEC shared plans to host a series of roundtables, allowing Crypto Task Force members to communicate with local crypto industry players across the country.

Fighting the shadows of the past

One of the focal points of Project Crypto is making President Donald Trump’s rhetoric about America being “the crypto capital of the planet” a reality. This includes reshoring U.S. businesses that left the country due to what was perceived as unfavorable regulations from previous administrations. It aligns well with Trump’s protectionist efforts to bring manufacturers back to the U.S. Atkins said that under his leadership, “the SEC will not stand idly by and watch innovations develop overseas while our capital markets remain stagnant.”

The previous SEC chairman, Gary Gensler, tended to equate most cryptocurrencies with unregistered securities and initiated multiple legal battles with key industry players, such as Ripple and Coinbase, forcing them to divert resources to protect themselves from the SEC instead of focusing on their products. Understandably, this wasn’t a healthy environment for the crypto industry to thrive. 

Due to securities laws, many crypto companies have excluded American citizens from their ecosystems. For instance, Americans could not receive airdrops, participate in ICOs, etc. Atkins directly addressed this issue in his speech, saying that the SEC will work to coin regulation that will allow the U.S. citizens to participate in the crypto activity without those limitations, so that “issuers no longer exclude Americans from their distributions to avoid legal complexity and lawsuits, but instead choose to include Americans to enjoy legal certainty and an accommodating regulatory environment.”

Another shadow hanging over the U.S. crypto industry is Operation Chokepoint 2.0, a term used to describe what crypto pros saw as a coordinated effort by U.S. regulators to restrict their access to the traditional banking system.

While some argue that increased scrutiny is a necessary step to combat illicit activity like money laundering and terrorist financing, the lack of clear regulatory guidelines, coupled with sudden account closures and pressure on banks to sever ties with crypto firms led many to believe that the actions were intended to stifle an emerging sector seen as a threat to entrenched financial and economic interests.

Atkins vowed to create an attractive regulatory climate in the U.S. so that companies that had to flee the U.S. due to debanking would eagerly return to the U.S.

Setting new rules

The SEC is set to implement new rules that will allow crypto companies to focus on growth and development. Atkins said:

“I have directed the Commission staff to draft clear and simple rules of the road for crypto asset distributions, custody, and trading for public notice and comment. While the Commission staff works to finalize these regulations, the Commission and its staff will, in the coming months, consider using interpretative, exemptive, and other authorities to make sure that archaic rules and regulations do not smother innovation and entrepreneurship in America.”

To ease the crypto business deployment in the U.S., Atkins vowed to create an exemption that will allow both registered and non-registered crypto companies to work in the U.S., even if they are not perfectly fit in the existing rules, giving companies and regulators time to make adjustments so that everyone will be satisfied. However, companies will be required to report to the SEC, will not be able to establish services outside the “whitelist” services approved by the SEC, and face several other protective limitations.

Atkins addressed the companies’ demand for the framework regulating crypto distribution in the U.S., which will foster cryptocurrency offerings and other capital-raising avenues associated with digital assets. To eliminate all uncertainty, the SEC is going to determine the legal status of various crypto assets (digital collectibles, stablecoins, digital commodities, etc). The aim is to help market participants follow clear guidance. 

On top of that, Atkins emphasized that the right to choose between self-custody or using a third-party custodian is the “core American value.” Custodians must adhere to the rules set by the SEC. 

Super-apps and tokenization

In his speech, Atkins mentioned a new notion – super-apps. In general, by super-apps, he meant platforms where traditional securities and cryptocurrencies would be traded side-by-side. According to the SEC Chair, his priority is to bring securities and non-security tradable assets under a single roof.

Atkins said: 

“Nothing in the federal securities laws prohibits SEC-registered trading venues from listing non-securities on their platforms today, and I have directed the Commission staff to develop further guidance and proposals ultimately to make this “super-app” vision a reality.”

Generally, Atkins was discussing tokenization and the integration of securities and non-security assets, allowing them to be traded with ease. Securities should be brought on-chain to facilitate easier trading and remove unnecessary intermediation wherever possible. Some of the securities laws will be rewritten to meet these goals.

Reaction

Despite the SEC Chairman’s bullish speech, the crypto market declined the following day. The reasons are the continuation of the downtrend that began earlier, high tariffs imposed by Trump on many countries, and the Federal Reserve’s decision to keep interest rates at a high level.