In a series of Twitter threads, John E Deaton, Founder of Crypto-Law.us, has raised serious concerns about the SEC’s regulatory path regarding the cryptocurrency industry, particularly Ethereum. Deaton points out that while SEC Chairman Gary Gensler has been a controversial figure in the crypto community, he is not the sole target of criticism.
SEC’s Lack Of Clarity Surrounding Ethereum
Deaton highlights that the SEC, as an agency, seems to have lost its way, preferring a lack of clarity and vagueness in its regulations.
Hester Peirce, also known as “Crypto Mom,” proposed a Safe Harbor concept in 2018 during the “ICO Craze,” but her idea was ignored. It indicates a trend of the agency favoring ambiguity rather than providing regulatory clarity to the crypto market.
The controversy deepens with revelations from the Hinman Speech emails. The General Counsel’s Office reportedly advised against providing regulatory clarity to Ethereum and stating that current sales of Ethereum (ETH) are not securities.
The motive behind this recommendation wasn’t because they believed ETH wasn’t decentralized enough but rather to maintain maximum prosecutorial options for the agency in the future.
It suggests that the SEC deliberately keeps certain aspects of the crypto market uncertain about having more flexibility in enforcement actions.
Mark Cuban’s recent tweet about FTX’s crash in Japan also resonated with Deaton’s arguments. He pointed out that if the SEC had adopted a clear regulatory framework similar to FTX Japan’s approach, investors wouldn’t have lost money during the crash.
Cuban emphasized that crypto’s success or failure should be determined by its merits, and it’s the SEC’s approach that has led to billions in losses.
Deaton further called attention to the November 2022 transcript in the LBRY case, where the SEC’s intent not to provide clarity to LBRY users regarding secondary market sales was evident.
The judge expressed frustration with the SEC’s stance on clarity, further highlighting the agency’s ambiguous approach. The lack of a mandate regarding segregating customer funds/crypto forces companies to maintain 100% reserves.
Additionally, Deaton questions why the SEC approves futures, shorts, and leveraged ETFs for Bitcoin but not a spot ETF, leaving investors without proper protection.
The situation becomes murkier with major financial players like BlackRock, ARK, and Cboe’s partnership with Fidelity-linked spot BTC ETF, all utilizing Coinbase as an exchange. Yet, the SEC maintains that Coinbase is operating illegally.
However, the threads by John E Deaton call for a reevaluation of the SEC’s regulatory approach, urging the agency to adopt clear and comprehensive guidelines to foster growth and investor protection in the crypto space.
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