The SEC's Retreat and the Geopolitical Risks in Crypto Investment

The U.S. Securities and Exchange Commission (SEC) has undergone a dramatic shift in its approach to regulating foreign-linked cryptocurrency projects between 2023 and 2025. Under the leadership of Chair Paul Atkins, the agency has moved away from the enforcement-heavy strategies of the Gensler era, opting instead for a more innovation-friendly framework. This recalibration, while potentially beneficial for domestic crypto startups, has raised critical questions about how the U.S. balances fostering technological advancement with mitigating geopolitical and national security risks posed by foreign-linked projects.

The SEC's Regulatory Retreat: From Enforcement to Clarity

The SEC's recent actions reflect a deliberate pivot toward clarity over confrontation. In December 2025, the agency issued a no-action letter allowing the Depository Trust Company (DTC) to tokenize custodied assets on blockchains, signaling support for innovation in digital asset custody. Similarly, the SEC exempted the Fuse Crypto Token from securities registration, concluding it did not constitute an investment contract. These moves align with "Project Crypto," a 2025 initiative aimed at modernizing securities laws to accommodate blockchain technology while maintaining investor protections.

This shift is part of a broader "back to basics" enforcement strategy. The SEC has dismissed high-profile cases against platforms like Coinbase and Ripple, prioritizing fraud and market manipulation over technical violations. Acting Chair Mark Uyeda emphasized this focus, stating the agency would concentrate on "genuine harm and bad acts" rather than speculative legal theories. While this approach reduces regulatory uncertainty for U.S. firms, it also creates a vacuum where foreign-linked projects-unbound by U.S. oversight-can exploit gaps in the global regulatory landscape.

Geopolitical Risks: Foreign Projects as National Security Threats

The U.S. government has long warned that foreign-linked crypto projects pose systemic risks to financial stability and national security. For instance, Russia's A7A5 token-a ruble-backed stablecoin-processed over $93.3 billion in transactions in 2025, serving as a tool for sanctions evasion. Similarly, North Korea's Lazarus Group leveraged decentralized protocols like Tornado Cash to launder over $1 billion in stolen funds, bypassing U.S. sanctions. These cases highlight how adversarial nations exploit crypto's pseudonymity and cross-border nature to undermine U.S. economic influence.

The Treasury has taken aggressive action against such threats. In August 2025, OFAC re-designated Garantex and its successor, Grinex, for facilitating ransomware payments and money laundering by Russia-linked groups. Garantex alone processed $100 million in illicit transactions since 2019, with U.S. law enforcement seizing $26 million in frozen assets. These actions underscore the dual challenge: while the SEC focuses on domestic innovation, foreign actors exploit regulatory arbitrage to destabilize U.S. financial infrastructure.

Balancing Innovation and Security: A Delicate Tightrope

The U.S. government's response to this dilemma has been multifaceted. President Trump's 2025 executive order emphasized promoting digital asset innovation while reinforcing national security safeguards. The SEC's Project Crypto includes proposals for a licensing framework for "super apps" that integrate traditional and crypto assets under a unified regulatory structure. Meanwhile, the Treasury has pushed for stricter anti-money laundering rules for digital-asset intermediaries, recognizing that weak oversight enables illicit activity.

However, these efforts face significant hurdles. The GENIUS Act, a legislative attempt to regulate stablecoins, leaves critical gaps in oversight for foreign payment stablecoin issuers (FPSIs), creating vulnerabilities for adversarial influence. Additionally, the integration of crypto into mainstream financial systems-such as retirement accounts and banking infrastructure-heightens the stakes of regulatory missteps.

Conclusion: A Call for Strategic Pragmatism

The SEC's retreat from aggressive enforcement has opened new avenues for U.S. crypto innovation but has also exposed the country to heightened geopolitical risks. While initiatives like Project Crypto and the DTC's tokenization pilot demonstrate a commitment to fostering growth, they must be paired with robust safeguards against foreign exploitation. Investors must weigh these dynamics carefully: the U.S. market's regulatory clarity could attract capital, but the shadow of adversarial crypto projects looms large.

As the crypto landscape evolves, the challenge for policymakers-and investors-will be to strike a balance between nurturing innovation and defending against threats that transcend borders. The next phase of crypto regulation will likely hinge on whether the U.S. can harmonize its domestic ambitions with a globally coordinated approach to mitigate risks.