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Can crypto survive in Biden’s America?

The Securities and Exchange Commission sued Coinbase on Tuesday, accusing the crypto giant of operating as an unregistered securities exchange, broker, and clearing agency, and of offering and selling securities without registering. The lawsuit came just a day after the SEC sued Binance for fraud. And now it’s easy to see why SEC chair Gary Gensler is known as crypto’s nemesis.

Gensler is also one of several Biden appointees who are vocal opponents of big technology companies. Now that we’re more than two years into Joe Biden’s presidency, these regulators have largely made good on promises to crack down on certain business practices in Silicon Valley and beyond, though results have varied. While opponents claim that these agencies are abusing their power and overreaching, supporters say the agencies are a necessary check on industries that have been allowed to grow and thrive with few regulations, often to Americans’ detriment.

In the Coinbase lawsuit, the SEC claims that certain tokens exchanged on the platform qualify as securities and are therefore subject to the SEC’s regulations, including a requirement for Coinbase to register as a securities exchange, broker, and clearing agency. Coinbase also, the SEC says, sells securities through its “Earn” staking program. At the heart of all of this is Gensler’s unwavering belief that most crypto assets are securities, so they fall under his agency’s purview and are subject to its rules. Coinbase says the tokens aren’t securities, but it sure would love some legislation that makes all of this clear (preferably that Coinbase helps write) rather than being in the middle of a years-long turf war between the securities and commodities agencies over who is in charge of what. The SEC maintains that it has oversight here and that Coinbase knows it.

“Coinbase was fully aware of the applicability of the federal securities laws to its business activities, but deliberately refused to follow them,” Gurbir S. Grewal, director of the SEC’s Division of Enforcement, said in a statement. “You simply can’t ignore the rules because you don’t like them or because you’d prefer different ones.”

Coinbase’s chief legal officer and general counsel Paul Grewal (yes, he has the same last name as his SEC opponent) said in a statement to Vox that instead of providing clear rules and guidance for the industry, the SEC has taken an “enforcement-only approach.” He also said in a blog post in March that, according to Coinbase’s analysis of whether a digital asset is a security, Coinbase doesn’t list or offer securities to customers. As the new lawsuit indicates, the SEC’s analysis of the situation is quite the opposite. Coinbase’s Grewal also called for “legislation that allows fair rules for the road to be developed transparently and applied equally, not litigation.”

We’ve seen some efforts from Congress to pass such legislation, the latest being a draft bill from two Republican representatives. Gensler has said existing laws work just fine; the problem is that crypto exchanges don’t want to comply with them. For its part, Coinbase claims that the SEC refuses to provide any clarity on its regulations, nor will the agency let it register as a security exchange.

Then there’s the Binance lawsuit, which is more about whether it committed fraud than it is about which crypto assets are securities, as the Coinbase suit is centered on. Binance denies the allegations, saying, “We now join a number of other crypto projects facing similarly misguided actions from the SEC.”

There are a lot of crypto-related actions from the SEC, many of which haven’t gone the crypto industry’s way. A few examples:

  • Kraken recently paid $30 million and ended its staking service to settle SEC charges.
  • The SEC just settled its case against a former Coinbase employee who was accused of insider trading of tokens (the employee pleaded guilty to criminal charges brought by the Department of Justice last February and was sentenced to two years in prison).
  • Last October, Kim Kardashian shelled out $1.26 million in SEC fines to settle a case over her promotion of a token on an Instagram story, and then in March, several other celebrities paid to resolve a similar case over undisclosed promotions of tokens.
  • Crypto lender Genesis and crypto exchange Gemini were sued for selling unregistered securities last January.
  • There are also, of course, multiple actions regarding FTX.
  • Coinbase canceled its Lend program in September 2021 after the SEC threatened to sue them over it. But Lend never got started; the things the SEC is going after Coinbase for now very much have.

These latest lawsuits show that the SEC isn’t afraid to take on the largest crypto exchanges in the world (Binance) and the US (Coinbase) in court. The fact that crypto’s fortunes (and those of many of its investors) have declined precipitously in the last year and a half has probably made them easier targets.

There is the broader theme here, too, which is that this is another example of how the Biden administration is taking on — or at least wants to give everyone the perception that it’s taking on — loosely regulated tech industries that previous administrations largely left alone. In March 2022, Biden signed an executive order about crypto, calling for, among other things, a digital currency issued by the US Central Bank.

Big Tech’s perceived abuses have gotten even more of the administration’s attention. Biden has written and talked many times about the need to better regulate Big Tech through new laws and administrative actions. While Congress has largely failed to pass Big Tech-centered antitrust laws, the two antitrust enforcement agencies, the Federal Trade Commission and the Department of Justice’s antitrust division, are led by appointees who have been adversarial to Big Tech: Lina Khan and Jonathan Kanter, respectively. Biden also picked Tim Wu, longtime critic of Big Everything, as his antitrust adviser. Wu was a key author of Biden’s competition executive order, but left the job at the end of last year.

FTC chair Lina Khan and SEC chair Gary Gensler have an aside after a House hearing.

FTC chair Lina Khan and SEC chair Gary Gensler talk shop.
Al Drago/Bloomberg via Getty Images

Kanter’s DOJ sued Google in January over allegations that Google’s digital ad business was an illegal monopoly, adding to another antitrust lawsuit the DOJ filed toward the end of the Trump administration against Google over its search and search advertising business. Google has denied it’s done anything wrong, and it’s likely that a court will ultimately decide who’s right. The DOJ is also believed to be investigating Apple over its App Store.

Khan’s FTC is still trying to break up Meta, and it sued Microsoft to block its acquisition of Activision-Blizzard. We’re waiting for a resolution in those cases that may well take years. The FTC’s attempt to block Meta from acquiring a VR developer, however, was knocked down in court — a win for Meta. There are rumors that the FTC will take on Amazon for alleged antitrust violations at some point, too. Some of Khan’s impact may be less visible. That includes the decrease in mergers and acquisitions that some have at least partially blamed on companies not wanting to deal with an FTC or DOJ they expect to be adversarial.

Though progress on the Big Tech antitrust front has been slow, the FTC is getting some results on consumer protection-related actions against tech companies for business practices that are widespread and, the agency says, illegal. We’re seeing settlements for relatively small amounts that may prove to be significant in other ways. A $1.5 million fine for GoodRx over sharing users’ health data with third parties won’t hurt its bottom line, but it also allowed the FTC to use a method it never has before, the Health Breach Notification Rule, to do it. Last month, the FTC used that rule again to go after a fertility app.

There’s also the pair of settlements announced last week involving Amazon. The FTC fined Amazon $30.8 million over privacy violations and inadequate security measures in Ring cameras and children’s privacy violations on its Alexa voice assistant. While that dollar figure seems small to one of the world’s largest retailers, it showed that this FTC takes privacy seriously (if there was any doubt) and puts at least some of the burden on companies to ensure their products are secure, rather than foisting the entire responsibility onto their customers.

And let’s not forget that just two days ago, the FTC got a $20 million settlement from Microsoft over children’s privacy law violations on its Xbox gaming platform. Epic Games also agreed to pay a record children’s privacy violation fine — $275 million — at the end of last year, as well as another $245 million for tricking young users into making purchases, and then making it exceedingly difficult for their parents to cancel them. That’s part of the FTC’s initiative to stop manipulative web design, also known as dark patterns. On that front, the FTC has also begun the process of making a rule that would require companies to make their products as easy to cancel as they were to sign up for.

While the FTC and SEC have been busy, one agency that hasn’t really lived up to expectations is the Federal Communications Commission, which many thought would bring back net neutrality. It can’t, because there are two Democratic commissioners and two Republicans, who will never agree to net neutrality. Biden hasn’t been able to get a third Democrat on the commission in almost two and a half years. His latest attempt, Anna Gomez, was lauded by at least one telecommunications company. That bodes well for her chances of getting confirmed, and less so that the Biden administration’s more progressive goals will be achieved.

Looking far more likely these days, at least in the short term, is the SEC’s fight against crypto, a notoriously fraud-filled space that a lot of consumers have been hurt by, especially as its fortunes have declined. Coinbase believes it has done nothing wrong and will fight the SEC to prove it, on behalf of the entire industry that, CEO Brian Armstrong says, is simply asking for clarity that the SEC refuses to provide. He has a few pro-crypto lawmakers in his corner, like Sens. Bill Hagerty (R-TN), who accused Gensler of “weaponizing” the agency, and Cynthia Lummis (R-WY), who decried the SEC’s “regulation by enforcement.” Assuming Coinbase doesn’t fold, we’ll see who the courts think is right.

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