In the wake of the appointment of an American crypto -czar and the announcement of extensive crypto legislation, many believe that the era of “regulation by enforcement” in the United States is over. But while SEC and CFTC now have crypto-friendly chairmen, both state regulators and lawyers are generally ready to take their place as aggressive crypto enforcers.
For years, SEC’s aggressive “regulation according to enforcement” method of the crypto industry growth and caused many to demand a comprehensive regulatory framework that would put an end to the “war against crypto” once and for all. For this reason, many in the industry were merged to provide their support for pro-crrypto candidates.
This strategy bore fruit. Donald Trump was elected the first president to smooth out his support for the crypto industry despite his somewhat antagonistic attitude towards crypto over his previous period. Since accession, Trump appointed David Sacks to the country’s first “crypto -czar”, established a president’s working group in digital asset markets and appointed preliminary SEC and CFTC chairs that have already expressed their support for the crypto industry.
But these federal changes do not end aggressive enforcement measures from state regulators facing public pressure to intervene to rule in crypto. Many in the industry have already been exposed to aggressive enforcement from regulators such as the New York Department of Financial Services (Nydfs), which recently achieved a $ 37 million settlement from a Crypto loan platform. Supervisors such as Nydfs were aggressive, even when SEC engaged in aggressive tactics against crypto, so when SEC scales its efforts, you can expect them to fill the void.
Other states follow New York’s lead. At the end of 2023, California passed the law on digital financial assets authoring its Department of Economic Protection and Innovation to licenses and regulate digital assets. And Illinois legislation recently began to consider a new bill called ACT Digital Assets and Consumer Protection, which would allow the state to regulate any company dealing with the “digital asset’s business activity” with a resident of Illinois.
State Attorneys in general
It is possible that new federal legislation can limit the ability of the state regulators to bring their own enforcement questions. On February 4, the chairman of the House and Senate Committee expressed confidence in the adoption of extensive legislation that would create a regulatory framework for crypto within the next 100 days. Because federal law prevents state legislation, the new legislation can empty some state legislative activity.
But even if state regulators are inhibited by new legislation, this legislation would not limit the state’s lawyer’s ability to fil for litigation claiming fraud from crypto-related businesses. State Ags previously brought these litigation when SEC’s “regulation of enforcement” crusade was in full swing. By 2023, the New York Attorney General Latitia James filed a lawsuit that a crypto trading platform mistakenly represented itself as an exchange. Later that year, the platform settled for $ 22 million and did not agree to do business with New Yorkers in the future.
To be sure, a national regulatory framework and have pro-crrypto regulators in Washington will provide more security and predictability to the crypto industry. But anyone who believes that “regulation by enforcement” is at the end is naive. You can still expect aggressive litigation and regulator activity in the coming years. The venue can move from sec to the states, but the impact on cryptic businesses and their customers will remain.
