US Crypto War: Battle Shifts to States

The US Crypto War: A Shifting Landscape

The US Securities and Exchange Commission (SEC) has long been criticized for its heavy-handed "regulation by enforcement" approach, which has cast a long shadow over the crypto landscape. The lack of a clear regulatory framework has driven companies offshore, hindered innovation, and sparked calls for reform within the industry.

However, with a new administration and signs of federal acceptance, many believe that the so-called "war on crypto" is finally subsiding. Yet, this assumption may be premature, as the battle is far from over and is merely shifting its focus.

In a surprising turn of events, former crypto critic Donald Trump became the first US president to openly endorse the industry. His administration took aggressive steps, such as appointing David Sacks as the country's first "Crypto Czar," establishing a President's Working Group on Digital Asset Markets, and placing interim SEC and CFTC chairs who expressed receptiveness to digital assets.

While these moves signal a warmer federal approach, state regulators and Attorneys General, driven by public outrage over fraud and financial instability, are poised to push for aggressive regulation. As the SEC steps back, state regulatory agencies like the New York Department of Financial Services (NYDFS) are stepping up their enforcement efforts. NYDFS recently received a $37 million payment from a crypto lending firm, demonstrating its eagerness to crack down on the industry.

Other states are following suit. California's recently signed Digital Financial Assets Law grants its Department of Financial Protection and Innovation broad powers to oversee digital assets. Illinois legislators are discussing the Digital Assets and Consumer Protection Act, which would enable the state to oversee any crypto company that does business with Illinois residents.

The crypto war is far from over; it is merely reframing its battlefields. As federal regulators take a more accepting stance, state regulators are stepping in to fill the void, eager to assert their authority and protect consumers from the perceived risks of the crypto market. The industry must navigate this shifting landscape and adapt to the evolving regulatory environment to ensure its long-term success.