Crypto lawyer John Deaton has intensified his criticism of the U.S. Securities and Exchange Commission (SEC) over what he describes as its inconsistent and “head-spinning” approach to crypto regulation. As the SEC prepares for another court battle with Ripple Labs in the Secondary Circuit Court, Deaton, a vocal pro-crypto advocate and candidate for the Massachusetts Senate, argues that the agency’s regulatory practices have been contradictory, particularly in their stance on major crypto firms.
Deaton’s grievances with the SEC’s enforcement actions are compounded by its recent appeal of Judge Analisa Torres’ decision in the Ripple case, which found that XRP is not considered a security when sold to retail investors. This move, according to Deaton, underscores what he calls the “bizarre, hypocritical approach” the SEC has taken toward crypto regulation.
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Deaton’s Critique: SEC’s Crypto Regulation Lacks Consistency
Deaton, who is running against anti-crypto Massachusetts Senator Elizabeth Warren, took to social media to share his frustration, comparing the SEC’s regulatory stance to the erratic behavior of a character in The Exorcist. He argues that while the SEC targets platforms like Coinbase, Binance, and KuCoin for allegedly violating securities laws, it seemingly turns a blind eye when politicians, such as presidential candidate Kamala Harris, cash out crypto donations through these same platforms.
Deaton has long maintained that the SEC’s actions are creating more confusion than clarity in the crypto market. He highlights that the agency allowed Coinbase’s initial public offering (IPO) in 2021, only to later accuse it of operating as an unregistered securities exchange. “Two years prior to alleging Coinbase is running an illegal business, the same SEC…made a specific determination that accelerating Coinbase’s IPO was, in fact, in the public’s best interest,” Deaton stated.
SEC’s Enforcement-Based Approach Versus Regulatory Frameworks in Other Regions
The SEC’s reliance on enforcement rather than establishing a comprehensive crypto regulatory framework has drawn significant criticism. While other regions, such as Europe and Asia, are creating clear regulatory guidelines for digital assets, the SEC has focused on legal actions to address crypto compliance. The agency, led by Chair Gary Gensler, has issued numerous lawsuits against crypto firms this year, targeting them for alleged unregistered securities sales, while simultaneously losing several high-profile cases.
A central issue in the SEC’s approach is its use of the Howey Test, an established standard used to define what constitutes a security. This test has faced scrutiny, with critics arguing it fails to account for the unique characteristics of digital assets. In a recent amended complaint against Binance, the SEC even acknowledged the need to move away from the term “crypto asset security” to avoid blanket classifications for all crypto tokens.
Ripple Case and Potential Impacts of the Upcoming Presidential Election
The SEC’s appeal of the Ripple case ruling has reignited discussions on the agency’s regulatory future and its broader impact on the crypto industry. Deaton’s involvement as amicus counsel in the case has added momentum to the push for more transparent and supportive regulations for digital assets in the U.S.
The 2024 presidential election could become a significant turning point for the crypto regulatory landscape, with pro-crypto figures predicting shifts in policy that favor digital innovation. Deaton and other pro-crypto advocates believe that new leadership may prioritize a less enforcement-heavy approach, potentially fostering a clearer, more conducive environment for crypto innovation.
