The Election That Changed the Landscape of Crypto Regulation
Ryan Frederick[1]
ABSTRACT
It’s American nature to want the underdog to win. The cryptocurrency (crypto) industry has been a marketplace underdog since its conception. The crypto industry has had to fight security regulations that many argue don’t apply to them, bad press, criminals using the crypto name to commit fraud, and many other setbacks, but like many underdogs, all they need is that one pivotal chance to shine to rise to greatness. It is my belief that the pivotal moment that crypto needed was the 2024 United States Presidential Elections. This note will discuss how the history of the SEC and its regulations have impacted the crypto industry’s growth and how I believe, post-election, there will be a fundamental shift globally, creating a crypto revolution.
Outline
A. Pre-Securities and Exchange Commission. 5
1. The Securities Act of 1933. 6
2. The Securities Exchange Act of 1934. 7
B. The Securities and Exchange Commission. 8
2. Howey: To Be Continued- Framework. 10
1. The Ripple Felt Around the World. 15
B. The Misinformed and the Misconception. 17
2. Crypto Acceptance and Usage. 19
3. Negative Returns On Crypto. 20
D. SEC’s New Mission is Vetting Viability. 26
IV. 2024 PRESIDENTIAL ELECTION.. 31
A. Vice President Kamala Harris. 31
B. President-Elect Donald Trump. 32
V. Speculation On Crypto’s Future. 34
A. Legitimization Through External Markets. 34
B. Legitimization Through The Use As A Currency. 37
C. Legitimization Through Regulations. 38
INTRODUCTION
The euphemism that money makes the world go round is an age-old adage that has prevailed the sands of time, but I’d argue that a clarification needs to be made to the sentiment. Money makes the world go round for the consumer, but innovation makes the money flow for the supplier. Innovation is defined as a novel idea, method, or device.[2] Innovations are often created to fix a problem, want, or need in society. To understand why we innovate, we must also understand the theory of capitalism, which is a theory that society can be built on a market where producers and consumers rely solely on the market for production as long as there is no interference by external factors on the accumulation of surplus goods, such as a military taking.[3] From a business standpoint, entrepreneurs and businesses are encouraged to innovate because, at best, it may allow the entrepreneur to create a new market, creating high demand with little competition, and at worst, it may allow an entrepreneur to “break into” a heavily saturated market, such as creating a niche business. Thus, even in a niche market, a business is able to capitalize in a market space where there is a low supply of similar solutions, methods, or devices, allowing the business to be the sole purveyor of satisfying such demand. When done correctly, such actualization of market utilization can equate to significant revenue generation for entrepreneurs and businesses. For example, my wife’s business is in the market of Female Health, but she has niched it down to virtual coaching to treat the pelvic floor via Zoom; with my help, she is two years in, and her annual revenue is roughly seven figures and is projected to double by next year.[4]
The American market is structured as a capitalistic market. Some economy experts may argue that capitalism in its most extreme form is laissez-faire capitalism, which is an economic theory that is highly adverse to government intervention in the economy.[5] Laissez-faire is French for “leave alone,” which is a reinforcement of this theory’s principal nature.[6] Inherent to the theory of laissez-faire is the concept of survival of the fittest. This phrase was coined by Herbert Spencer, and not Charles Darwin, believing that a capitalistic society and market would prevail on a global level.[7] Presently, the majority of economists recognize the need for some supra-economic organization to determine the rules on how the economy operates, for without rules, there is a void where chaos prevails.[8] Additionally, although laissez-faire capitalism has been pushed to a mere figment of the past, survival of the fittest keeps on reappearing in American economics under the premise that a capitalist market will promote good innovations and kill bad innovations and that there are proponents who still want little to no government involvement in the market.[9] Some experts believe that we are actually heading towards a Chinese-style capitalism, where a significant amount of business decisions are no longer made in boardrooms but are based on politics for “national security.”[10]
A culmination of the market, the ideas of consumers and suppliers, and innovations have led to the creation of crypto technology, which this note is premised on. Let me provide a brief explanation of cryptocurrency. In a vacuum, cryptocurrency is merely an innovation that was completely novel in its concept. Cryptocurrency by itself is not an innovation that is skewed towards criminal activity; it is the individuals themselves who are committing crimes and wrongs through the use of this innovation. This is similar to the rhetoric used by gun advocates when they say guns are simply a tool and neutral in itself; it is only untoward individuals who commit crimes with that tool that are in the wrong.[11] In essence, individuals who believe such logic believe that a tool is simply a tool; it provides a more efficient way to further the actions of an actor who already has the intent to act. I am not here to argue the merits of which is worse, whether the misuse of a firearm that leads to death or the misuse of crypto that can lead to financial ruin, but that innovations are merely tools that can be used for good or evil depending on the user.
As the underdog innovation that crypto is, since its conception, the Security and Exchange Commission (SEC) has had little faith in crypto. An example of this can clearly be seen in a recent interview that happened on CNBC, where Gary Gensler, Chairman of the SEC, continually pushed the narrative that in order for crypto to be successful in America, it needs to garner the trust of Americans and seemingly the pivotal way to gain that trust is through the SEC asserting themselves in the crypto space, creating rules, and businesses falling in line.[12] This type of rhetoric echoes the tactics of state-based capitalism that were briefly touched on above.[13] This article will evaluate the regulatory position that has affected the crypto industry, emphasizing the position of the SEC and its large role in the regulation of crypto and how the 2024 United States Presidential election will be the catalyst to a crypto renaissance.
I. HISTORY OF THE SEC
The events leading up to the creation of the SEC can be traced back to the 1900s. After World War I, there was an economic boom that encouraged people to attempt to “stick it rich” by investing in the stock market.[14] This led a lot of people to buy stocks on margin at huge risk without federal oversight.[15]
A. Pre-Securities and Exchange Commission
State governmental agencies undertook the task of regulating corporate securities and named the laws under the umbrella term “blue sky laws.”[16] These laws were named blue sky because “if securities legislation was not passed, financial pirates would sell citizens everything in [the] state but the blue sky.”[17] Lawmakers of the time had a very proactive mindset and implemented these laws against fraud and negligence instead of waiting for the outcry of the victimized public.[18] Blue sky laws varied state-by-state but could be classified into two categories: antifraud and licensing laws.[19] “Antifraud laws did not take effect until evidence appeared that fraud had been or was about to be committed in the sale of securities.” “Licensing laws gave state officials control over traffic in securities by prohibiting sales until an application was filed and permission granted by the state.”[20] For multiple reasons, including inadequate state funding to support full-time manpower needed to investigate and take procreational action, blue sky laws were ineffective.[21]
While the promise of “getting rich quick” was made to investors, the information provided pre-offering prior to 1933 was minuscule at best.[22] In a fevered frenzy, the public was investing their savings in optimistic speculations.[23] President Coolidge was briefed by several experts about the turmoil in the market.[24] Taking the stance of laissez-faire, President Coolidge left it to the states to take action if they so choose.[25]
On October 29, 1929, commonly known as Black Tuesday, the stock market crashed, resulting in investors and banks losing billions of dollars in just one day.[26] “The stock market crash caused nearly 5,000 banks to close and led to bankruptcies, rampant unemployment, wage cuts, and homelessness, which triggered the Great Depression.”[27] The U.S. Senate conducted hearings on the crash and concluded that “numerous financial institutions had misled investors, acted irresponsibly, and participated in widespread insider trading.”[28] The hearings seriously questioned the effectiveness of the widely held view that laissez-faire economics policies served the country well.[29] In 1933, President Roosevelt recommended “the legislation for Federal supervision of traffic in investment securities in interstate commerce.”[30] This legislation was by no means to be a guarantee “that newly issued securities are sound in the sense that their value will be maintained or that the properties which they represent will earn profit.” “The major safeguard was to be full disclosure of information to the potential buyer.”[31] It was President Roosevelt’s intent that the legislation to add to the rule of caveat emptor, “further[ing] the doctrine of let the seller beware”[32]
1. The Securities Act of 1933
Although the drafters had conflicting points of view, the drafters produced several bills, with the final bill having an “underlying policy of disclosure through registration of securities unless the securities or the transaction are exempt.”[33] On May 27, 1933, the bill was turned into law under the Security Act of 1933.[34]
William O. Douglas (later Justice Douglas), who wrote extensively on the Act and later became chairman of the Commission, questioned whether many investors would benefit from the Act’s disclosure requirements. The highly technical information provided in registration would be “small comfort” to those in need of investment guidance. The average investor has difficulty assimilating the vast amounts of information to make an informed investment decision.[35]
President Roosevelt wanted it to be clear that the federal government should not give an appearance that they approved or guaranteed any new security.[36] Instead, the drafters were concerned about investors being adequately informed about potential security purchases and holding those filing the registration statement liable for any misstatement or omission.[37]
The inherent design of the Act was to regulate the new issuing of securities by any issuer.[38] The Act prevented corporations from using the mail or other interstate instruments and foreign commerce to sell or offer to sell a security before filing with the Federal Trade Commission a registration statement and prospectus on said security.[39]
Over thirty-two items concerning the corporation and its finances are required to be included in the statement.[40] The drafters also attempted to weaponize the Federal Trade Commission by imposing criminal liability on “anyone who: 1) attempts to sell a security prior to filing a registration statement;[41] 2) transmits a prospectus related to a security that does not comply with the Act;[42] or 3) makes any misrepresentation to a prospective purchaser contrary to the provisions of the Act.”[43]
Furthermore, the Act enabled civil actions by the public, allowing injured investors to attempt to recover lost funds.[44] Critics of the 1933 Securities Act argued that the expense of compliance would cause corporations to avoid issuing securities and seek to raise capital through different avenues.[45]
2. The Securities Exchange Act of 1934
“The many complexities and inadequacies of the Securities Act and the need for an independent administrative body to enforce the federal securities laws, regulate stock market practices, and curb the evils in the stock exchanges themselves led Congress to enact the Securities Exchange Act of 1934.”[46] One of the original drafts of the bill was meant to establish the SEC to “regulate the securities business; requires the stock exchanges to adopt rules of fair dealing; apply the full disclosure requirement of new securities under the Securities Act to all securities traded on a national exchange; and instruct the Federal Reserve Board to regulate the use of borrowed money in the stock market.”[47] The Senate contemplated the bill and agreed with the drafters by moving forward to lobby a new regulatory agency despite President Roosevelt wanting authority to be centralized in the Federal Trade Commission.[48] Eventually, the Senate was successful, and the SEC was established.[49] The establishment of the SEC left many aggrieved, with notable figures believing that this was the beginning of a transition to Communism[50], while others believed the objective of the bill was to “Russianize everything worthwhile”.[51]
B. The Securities and Exchange Commission
The SEC website states that their mission is to “work together to make a positive impact on the U.S. economy, our capital markets and people’s lives.” “The SEC is an agency that prides itself on being dedicated to seeking full disclosure and transparency from those whom it regulates.”[52] Professors at A&M University humorously state the current state of affairs at the SEC, “this is not your grandfather’s SEC anymore. Rapid technological change has resulted in novel regulatory issues and challenges, as law and policy struggles to keep pace.”[53]
II. THE SEC’s POSITION
Over the span of 90 years, the SEC has proclaimed that it is helping investors by building trust in markets.[54] In furtherance of this goal and their other objectives, the SEC “has asserted its authority over transactions involving the sale of cryptoassets.”[55] Reinforcing this sentiment, Chairman Gensler, in an interview, repeatedly stated that crypto won’t be successful unless it can build trust.[56] A key authority utilized by the SEC in furtherance of protecting the public and building trust is the requirement that securities must be registered with the SEC or satisfy a registration exemption.[57] Once an asset has been distinguished as a security, the SEC has broad authority to prosecute securities fraud associated with the asset.[58]
A. Defining Security
To analyze what the SEC’s actual position is, we first must analyze and define what a security is. As stated before, the SEC’s primary focus is on securities.
In considering when and how federal securities laws apply to novel interest, like cryptoassets (which did not exist prior to 2009), it is important to keep in mind…the two most important [federal securities laws] for purposes of regulations of cryptoassets and transactions involving them, are the Securities Act of 1933 and the Securities Exchange Act of 1934.”[59]
An asset or innovation generally only needs to follow the requirements detailed in these Acts if it is considered a security.[60]
The threshold question of whether or not a transaction is a security is important because the implications are far reaching. Once the determination is made that the transaction in question is in fact a security, then the transaction now comes under the purview of all applicable federal and state securities laws; a minefield of compliance obligations and culpable activity for the unenlightened or the unaware.[61]
Despite the slight difference between the two Acts, the Supreme Court has ruled that the Acts should be construed in the same manner.[62] “Both statutes use a definition of security which includes terms with specific, well-understood meanings, as well as words that’s are more elastic and possess less defined parameters.[63] For purposes of most cryptoassets, the most important category of “securities” has been anything that qualifies as an “investment contract.””[64] Generally, stock transactions that don’t conform with the general definition of stocks that you find on exchanges, such as the National Association of Securities Dealers Automated Quotations (NASDAQ), fall under the umbrella term of an Investment Contract.[65] Investment Contracts have been defined by case law due to silence within the Acts on such definitions.[66]
1. Howey Test
The case that defined Investment Contracts is SEC v. W. J. Howey Co.[67] W.J. Howey Company was a citrus grove company that was in the business of selling units of citrus groves.[68] The Howey Company would offer its investors the option to hire one of its subsidiary organizations, Howey in the Hills Company, to manage and cultivate the groves for sale for an additional fee.[69] Focusing on the economic substance of the case, the Court
looked at the relationship between those that were purchasing tracts of citrus groves and the company from whom such purchases were being made[70]... In its opinion the court recognized that the transactions in question were 1) investments of money; 2) in a common enterprise; 3) with investors expecting or being led to expect profits; 4) whose profits would be derived solely from the efforts of others (versus the investor’s efforts themselves).[71]
Modern courts have restructured the Howey test analysis to include the following elements: 1) an investment of money (or something else of value);[72] 2) in a common enterprise; 3) where the purchaser expects to receive profits;[73] and 4) the purchaser expects those profits based on the essential entrepreneurial efforts of others. The holding imposes that when all elements have been satisfied, then the asset or investment is an Investment Contract, thus meeting the legal definition of security.[74] The main theme of this ruling is that the relationship between investor and seller, in practice, operates like an investment in stock, where a return on your investment is through the efforts of the business and not the investor.
2. Howey: To Be Continued- Framework
In its 2017 DAO report, the SEC publicly took the position that crypto sales were to be officially considered a security if the crypto met the elements of the Howey test, which was created roughly 71 years prior.[75] Many commentators believed that DAO tokens were, in essence, a subcategory of crypto and, therefore, should not qualify to be the litmus test or standard of crypto and did not apply to a majority of crypto.[76] “After the DAO report was released, the various high-level SEC employees made an effort to condemn the sales of crypto publicly.[77]
For example, in August 2017, the SEC announced that trading in three blockchain-related companies was suspended, clarifying that the SEC’s concern over crypto transactions extended beyond the DAO. Then, in September, Steve Peiken, the Co-Director of the SEC’s Enforcement Division, publicly described persons seeking quick profits from initial crypto offerings (ICOs) as cockroaches. A few months later, in December 2017, SEC Chairman Jay Clayton began repeating the mantra that most, if not all, ICOs involved the sale of securities. In February 2018, in testimony before the Senate Committee on Banking, Housing, and Urban Affairs, he explicitly testified that every ICO he had seen was a security.[78]
The First deviation of this rhetoric occurred in the summer of 2018 at the annual Yahoo Finance Summit, where SEC’s Director of the Division of Corporate Finance, William Hinman gave an exception to the per se crypto security classification.[79] At the meeting, Hinman elucidated his opinion that not all crypto’s should be treated like securities, indicating that tokens such as Bitcoin and Ether were not securities and thus should not be subject to SEC regulation.[80] Hinman came to this conclusion because their underlying networks for such tokens are “sufficiently decentralized,” meaning that a “purchaser would no longer reasonably expect a person or group to carry out essential managerial or entrepreneurial efforts.”[81] Hinman went further to state that “[a]pplying the disclosure regime of the federal securities laws to the offer and resale of Bitcoin would seem to add little value.”[82] In April 2018, Chairman Clayton, in his testimony before the House Appropriations Committee, echoed Hinman’s belief that there may be some exceptions to the SEC’s “one size fits all” classification for all cryptoassets.[83] Chairman Clayton testified that Bitcoin at the very least was not a security and went even further to claim that “there are different types of cryptoassets… A pure medium of exchange, the one that’s most often cited is Bitcoin. As a replacement for currency, that has been determined by most people to not be a security.”[84]
In 2019, the SEC disseminated the Framework through FinHub (“a portal designed to specifically engage with companies using blockchain and other innovative financial technologies,”)[85] which was a “convoluted, thirty-eight factor analysis to “help” explain when crypto will be an investment contract,” and thus a security.[86]
The Framework took the relatively short Howey test and expanded it into more than three dozen different elements, most of which focus on the question of whether purchasers would have a reasonable expectation of profits derived from the efforts of others. While various characteristics are described as “especially relevant,” the Framework notes that no single part of the test is “necessarily” determinative. Perhaps even more confusingly, the Framework suggests that interests may have to be reevaluated after the initial sale to determine whether an interest that is not originally a security might have become one. With regard to whether there is a reasonable expectation of profits, the Framework does not, however, give any indication of how many of the described characteristics will be necessary or sufficient and does not indicate if any of the specified items will be weighted more heavily than the others. It certainly does not explain the points at which an asset might switch from being a security into something else or might become a security after being something else.[87]
While the Framework is not a formal rule or regulation, it was drafted by the Strategic Hub for Innovation and Financial Technology at the SEC and “intended to be instructive and is based on the Staff’s experiences to date and relevant law and legal precedent.”[88] The Framework was meant to provide insight into the staff’s opinion of crypto and how it should be analyzed.[89]
The Framework garnered criticism from crypto enthusiasts and support from those who believed that crypto is used to defraud and commit crimes. An interesting commentator was Hester Piece, the SEC Commissioner at the time, who gave a speech raising concern about the explanation because the framework could “raise more questions and concerns than it answers.”[90]
While Howey has four factors to consider, the framework lists 38 separate considerations, many of which include several sub-points. A seasoned securities lawyer might be able to infer which of these considerations will likely be controlling and might therefore be able to provide the appropriate weight to each…[N]on-lawyers and lawyers not steeped in securities law and its attendant lore will not know what to make of the guidance. Pages worth of factors, many of which seemingly apply to all decentralized networks, might contribute to the feeling that navigating the securities laws in this area is perilous business.[91]
Despite this detraction, on July 8, 2019, the SEC, in a statement, publicly doubled down and reemphasized the positions taken in the Framework, reinforcing that not all cryptos are securities but did not clarify at what definitive point a crypto becomes a security.[92]
3. The SAFT Attempt
To innovate is to step outside of what has been accepted and to create new solutions for problems. Because innovation is engrained within many entrepreneurs’ bones, they will, of course, try and find a way to fix a problem where there is profit involved, and that is exactly what they attempted to do with the SAFT process.[93] SAFT stands for Simple Agreement for Future Tokens and is designed as a two-step process for crypto issuers to raise capital in anticipation of the development of an operational utility token.[94] In essence, it is a crowdfunding to support the development of a viable token that has yet to be created and/or completed.[95] The first step of the process was the issuer selling contractual rights in an exempt offering generally to accredited investors that would satisfy the exemption under Rule 506(c) of Regulation D of the 1933 Act.[96] It was the belief of SAFT advocates that after the development and launch of the utility token, the second step, if done correctly, would not need an exemption because it would not qualify as an investment contract and, thus, not a security.[97] In 2018, the SEC emphasized targeting SAFT transactions and has repeatedly warned issuers that the Howey test is not contingent on whether there is a utility for the crypto.[98]
III. SEC GONE ASTRAY
The SEC’s mission is to “work together to make a positive impact on the U.S. economy, our capital markets and people’s lives.”[99] On its website, the SEC states that they have stayed true to their mission since the height of the Great Depression by “maintaining fair, orderly, and efficient markets, and facilitating capital formation[100]…We protect investors by vigorously enforcing the federal securities laws to ensure turn and fairness.[101] We deter misconduct, hold wrongdoers accountable, and provide resources to help investors evaluate their investment choice and protect themselves against fraud.”[102] It can be unequivocally said that the SEC has made meaningful efforts when it comes to stocks and securities, but many detractors believe that they have over-exerted their power in many ways when it comes to crypto and, in essence, become a quintessential bully with their aggressive actions against businesses and crypto.[103] One such detractor is SEC Commissioner Mark Uyeda:
I think our policies and our approach over the last several years have been just really a disaster for the whole industry… We have been sending this ‘policy through enforcement,’ we’ve done nothing to provide guidance on it. And as a result, this has been achieved by the courts. And different courts have ruled different ways… What has gone on is part of a broader frustration with the fact that we have not provided interpretive guidance as to what you can and cannot do and if you are involved in some sort of securities offering, how you register, how you get regulated as a broker-dealer, how you get registered as an exchange… [We] need to lay out some clear guidance and interpretations on what exactly falls within and falls outside of the securities laws.[104]
Many feel burned by their assertion of power and their propensity to fine corporations.[105]
Coinbase launched a legal offensive against the SEC and the Federal Deposit Insurance Corporation (FDIC) to procure documents relating to the agencies’ approaches to crypto regulation. Coinbase’s legal action aimed to shed light on what it describes as a “deliberate and concerted effort by the SEC, FDIC and other financial regulators” to pressure banks to deny crypto firms access to the federal banking system.[106]
Yet, the SEC believes they are sticking true to their core mission, better than ever under Chairman Gensler, as they publicly pat themselves on the back, stating “[it] has been one of the most productive Commissions on behalf of issuers and investors since the agency was created 90 years ago.”[107]
A. Enforcement Actions
During 2023, the SEC brought 46 enforcement actions against “various digital-asset market participants, a 53% increase from 2022.”[108] Out of the 46 enforcement actions, 26 were litigations in the U.S. Federal Courts, and 20 were administrative proceedings.[109] The SEC imposed $281 million in monetary penalties for settlements reached in 2023.[110] Approximately 37% of all the enforcement actions the SEC brought in 2023 were related to initial coin offerings, 82% of which included allegations of fraud.[111]
1. The Ripple Felt Around the World
One of the major early enforcement actions taken by the SEC in the crypto industry was the enforcement action the SEC brought against Ripple Labs, Inc (Ripple).
The XRP ledger was completed in December of 2012, and, at that time, the computer code set a fixed supply of 100 billion tokens. When launched, 80 billion XRP were transferred to Ripple, and the remaining 20 billion tokens went to a group of founders. According to the SEC’s complaint, what followed was a very long unregistered offering of XRP tokens. As described by the Commission, Ripple eventually issued approximately 14.6 billion XRP in a combination of distributions via bounty programs, as compensation to programmers and developers, and to institutional and other market participants. These sales raised approximately $1.38 billion to fund Ripple’s operations. While all of this was taking place, the SEC had no public reaction.[112]
In May of 2015, the Financial Crimes Enforcement Network (FinCEN), a Bureau in the U.S. Department of Treasury, fined Ripple $700,000 for selling their token XRP and acting as a money service business without registering.[113] “In making this determination, it can be assumed that FinCEN characterized XRP as a digital currency.[114] Finally, on December 22, 2020, more than five years after FinCEN fined Ripple, the SEC initiated legal proceedings against Ripple “on the grounds that the very same XRP token were securities.” “The FinCEN action in 2015 clearly means that Ripple’s activities were on the national radar at that time and, yet, it was more than five years before the SEC weighed in to deliver its opinion on how the crypto asset in question should be classified under the federal securities laws.”[115]
On January 1, 2021, a group of XRP holders, led by attorney John Deaton, filed a petition for a writ of mandamus in the District of Rhode Island, asking the court to force the SEC to exclude their XRP tokens from its pending litigation against Ripple on the grounds that the plaintiffs had not purchased investment contracts. Deaton’s petition argues that the SEC, under the leadership of then-chairman Jay Clayton, “caused multi-billion-dollar losses to innocent investors who have purchased, exchanged, received and/or acquired the Digital Asset XRP.” In the memorandum submitted in support of the petition for writ of mandamus, the plaintiffs made it clear that they did not invest in XRP in order to make a profit based on the efforts of Ripple.[116]
While there is no statute of limitations on the SEC’s ability to bring enforcement actions for conducting an unregistered offering, the public backlash against this particular lawsuit has been notable. Commentators first point to decisions from regulators in other jurisdictions that XRP is a currency rather than a security. They then criticize the unpredictability and unfairness of the SEC waiting so long to act while continuing to assert that the rules are “clear.” On July 13, 2023, Judge Analisa Torres entered a landmark order in the case, resolving most of the claims in front of her on cross-motions for summary judgment. In broad brush terms, the ruling found that Ripple had sold securities when it sold its XRP tokens to institutional investors early on, but that the tokens were no longer sold as securities when public investors acquired the assets in anonymous markets with secondary traders.[117]
B. The Misinformed and the Misconception
As stated before, for a period of time, it appeared that the SEC lumped all cryptos together.[118] One possible reason for this treatment of crypto since its initial launch could be because of misinformation that is constantly perpetuated in the media and sometimes by the SEC itself. For example, there is a correlation between SEC’s rhetoric and the general public’s belief that crypto will be used to facilitate fraud. Yet it is a fact that fraud and criminality are ever-present wherever there is money to be made. “As history demonstrates, where innovation outpaces regulatory response, and there is money to be made, fraudsters and scam artist step in.”[119] “There is a lack of legal consensus in large part because of confusion surrounding what cryptocurrency is and is not. Regulators cannot effectively regulate something they do not comprehensively understand.”[120] The mass fear and adverseness to crypto is, in large part, due to being uninformed or due to a misrepresentation of the facts. If the regulators are uneducated and the public is uneducated, then the result will be an ordeal similar to the Salem Witch Trials or the Red Scare, where innocent individuals are persecuted and vilified due to mass ignorance. Because “when all the regulators see is the potential for harm rather than the positive potential for innovation and growth, the result can be over-regulation and questionable enforcement activities.”[121]
1. Crypto Crimes
One of the biggest public misconceptions perpetuated by the SEC is the belief that crypto is a breeding ground for crime and fraud. Indeed, even some legal professionals and legal scholars have this opinion.
Many national authorities have targeted cryptocurrencies as a tool that enables illicit activities. Cryptocurrencies, just by their design, makes it very attractive for parties to perform illicit transactions. Criminals and terrorists can use cryptocurrencies as a mechanism to move and store illicit funds while evading regulatory and criminal guidelines in place. With no central authority there is no oversight to properly police the perpetrators. Tracking and tracing funds to the criminals creates heavy burdens on law enforcement as there are no uniformed or easy way to properly pinpoint the acts of money laundering and other criminal activities.[122]
Removing the argument of whether the SEC should be using laws meant to regulate stocks on crypto, it can clearly be seen that their current regulations are still allowing criminals to act in unlawful ways through the utilization of crypto and its platforms.[123] While the dollar amount of criminal activity and the volume of criminal activity is increasing on an annual basis, crime still only makes up a fraction of the crypto transactions.[124] In 2021, criminal activity equaled a total of 0.15% of all crypto transactions.[125] To provide a macro perspective, the World Bank stated that the total world Gross Domestic Product was $105.43 trillion,[126] while NASDAQ reported that globally, crime generated $3.1 trillion.[127] Provided the accuracy of this data, criminal activity accounts for 2.94% of all money generation in the world. Clearly, on a micro-scale, crypto can be used to facilitate the acts of criminals because it provides new avenues to commit their acts while, around the world, governments and regulators scramble to adjust. In no way, shape, or form am I trying to devalue the catastrophic harm such criminal activity might bring individuals, but merely stating that on a macro scale, crypto crime is a subset of the umbrella category of crime and accounts for a small percentage of harm created on a grand scale. Yes, crime is present in crypto, but not on the scale that a lot of crypto skeptics insinuate it is.
While all crime is bad, the SEC has been hyper-focused on fraud in the crypto space. Black’s Law Dictionary defines fraud as:
1) a knowing misrepresentation or knowing concealment of a material fact made to induce another to act to his or her detriment; 2) a reckless misrepresentation made without justified belief in its truth to induce another person to act; 3) [omitted]; 4) Unconscionable dealing; esp., in contract law, the unfair use of the power arising out of the parties’ relative position and resulting in an unconscionable bargain.[128]
A significant portion of the crimes committed with crypto is issuers providing misleading facts or representations, including outright promising a return on investment. A very recent case of such fraud happened with NovaTech.[129] The SEC filed charges against the owners, Cynthia and Eddy Petion, along with NovaTech Ltd., for operating a fraudulent scheme.[130] The SEC alleged that NovaTech and the Petions promised investors not only to see profit but that they would see a profit on day one of their investments.[131] The SEC further alleged that they raised $650 Million from 200,000 victims.[132] Although the effects of such crimes are horrendous, as stated before, while crime on a micro level may seem catastrophic and it is, in fact, a deplorable act, on a macro level, the amount of damage created through crime, let alone a subset of the crime being a fraud, is a fraction of a fraction.
2. Crypto Acceptance and Usage
Gensler has repeatedly publicly said that the only way for crypto to work is by gaining trust while simultaneously implying that the SEC is the only way for the public to gain trust in crypto.[133] Yet, over 17% of adults in America have invested, traded, or used crypto.[134] Racial and ethnic minorities have been statistically more inclined to invest in crypto, with 28% Asian adults and 20% Black and Hispanic adults, while White adults report 14% have invested, traded, or used crypto.[135] Yet, at the same time, statistics indicate that the wealthier a household is, the more likely they are willing to try to invest, trade, or use crypto.[136] The majority of individuals who have used crypto in the past still actively hold crypto, with a disproportionate number of lower-income households no longer holding it compared to middle and high-income households.[137] The use by millions of Americans is a form of relative acceptance of crypto in America. The acceptance of crypto has become so widespread that asset exchanges have emerged to facilitate active users and to provide new users with a more seamless experience, such as Coinbase.[138]
Coinbase is one of the most popular U.S. exchanges and offers an online platform for cryptocurrency purchase, storage, and transfer. Coinbase is moving cryptocurrency purchase into mainstream finances; it is a publically traded company and has met extensive reporting requirements since listed on the Nasdaq exchange in 2021.[139]
3. Negative Returns On Crypto
Although exchanges are being promulgated to make crypto investments easier, a significant portion of former investors complain about incurring a negative return on their investment in crypto.[140] “38% of Americans who have used cryptocurrency say their investments have done worse than expected.”[141] A correlation can be drawn as to why individuals are unimpressed with their experiences in crypto. “A study by JPMorgan Chase & Co. adds that individual investors have “transferred money into crypto accounts when prices were higher, suggesting lower investment returns.””[142] A speculative explanation for this reoccurring phenomenon could be that crypto has yet to become a mainstream investment vehicle, and because of this crypto news and, likewise, exposure to said news is delayed. Once individual investors learn about the majority of the crypto rallies, it is at the tail end of the rally, which coincides with the same time when individual investors who invested earlier are about to sell their crypto.
4. Unregistered Crypto
Another misconception promulgated by the SEC, is that crypto issuers are largely seeking to defraud investors by not wanting to register their crypto. Registration is a multifaceted conundrum for issuers, which leaves many aggrieved. Even when you remove the problem of whether the SEC has a right to regulate crypto in the manner that it currently is or whether crypto qualifies as a security from the equation, a crypto issuer still has a very large economic barrier to registering their crypto with the SEC. “The time and cost to register a security with the SEC is not fixed. The few cryptocurrencies that have registrations do not have well publicized financials, but the likelihood such registrations took a multi-year, multi-million dollar commitment is not out of question.”[143] The INX Group, the issuers of the INX token, reported that they registered the INX token with the SEC, and it took a total of 953 days and cost around $2 Million to complete the registration.[144] Furthermore, the treatment the SEC has provided issuers and others in the crypto space can be, at times, lackluster and very costly.
Major market participants have tried to take Chair Gensler for his word and “come in and register.” Former SEC Commissioner and current Robinhood Markets legal executive told reporters: “[Robinhood] went through a 16-month process with the SEC staff trying to register a special purpose broker dealer. And then we were pretty summarily told in March that the process was over and we would not see any fruits of that effort.” This has not been a one-off experience, as Coinbase Chief Legal Officer Paul Grewal shared “after months and months of discussion, we’re simply dismissed with no response or any courter proposal or ideas coming back from the SEC.[145]
The economic barrier, combined with what crypto innovators and issuers believe to be convoluted law, creates a monumental impediment to innovation in American society. These barriers can potentially exclude the U.S. from this proverbial tech boom known as crypto.
C. SEC: “I am the Law”
In a CNBC interview, one of the anchors stated to Gary Gensler that people in the industry do not know what the rules are, and Gensler responded by saying that not liking the rules is not the same as there aren’t rules.[146] Over and over again, when asked to clarify the rules by people in the crypto space, including issuers and would-be issuers, the SEC and Gary Gensler refused to clarify.[147]
In the decade since the SEC’s first advisory, market participants have repeated their interest in receiving clarity. The SEC has denied those requests. Moreover, Chair Gensler responded to one such denial in a manner that suggested his objection as a matter of principle: Today, the Commission denied a Petition for Rulemaking filed on behalf of Coinbase Global, Inc. I was pleased to support the Commission’s decision for three reasons. First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.[148]
Gary Gensler is speaking in part as if he is uttering a self-fulfilling prophecy: the SEC can regulate crypto because existing laws are present, and I construe them to apply in regards to crypto; therefore, there are crypto laws. “Chair Gensler’s blanket mandate on behalf of the SEC is a starkly different stance than the transaction-specific securities law analysis mandated in Howey.”[149] Yet “almost every interested party—save the SEC itself—agrees that the SEC has no business treating cryptocurrencies as investment contracts under the Securities Act.”[150]
Although prior to Gensler, it appeared that the SEC and Chairman Clayton were warming up to crypto by claiming Bitcoin was not a security, after Charman Gary Gensler replaced him, on August 3, 2021, Gensler publicly stated that “he believes the vast majority of crypto tokens and initial coin offerings…violate U.S. securities laws.”[151] Furthermore, SEC Chairman Gary Gensler publicly announced that the SEC could use a “broad” definition of what constitutes a security, insinuating that the SEC has even more regulatory power over crypto than what has been enforced so far.[152] “The SEC has decided, without Congressional authorization, that regulating cryptocurrencies is its job—and has decided to take on that new role without following the Administrative Procedure Act.”[153] Gary Gensler appeared to be a man on a mission, giving the SEC more and more power despite not being provided the legislative authority to do so.
During an interview, Gary Gensler made an analogy likening the SEC to a cop enforcing the rules of the road and a stop light.[154] Cops are meant to enforce the laws, but similar to the SEC’s recent practices, when a cop believes they can enforce a law that they create on the spot, it creates chaos instead of the intended peace and victimizes innocent people. “the challenges of cryptocurrencies require a “delicate exercise of” regulatory power. Bur “rather than a delicately handled scalpel, the [SEC’s position] is a one-size-fits-all sledgehammer that makes hardly any attempt to account for differences in” the financial instruments it is trying to regulate.[155] When almost a century-old laws are used as a catch-all to include technology that wasn’t even a figment of the drafter’s imagination at the time of the law’s conception, no one in good conscience can say these laws are finely tuned to apply to crypto.
Under different laws, statutes can be voided for their vagueness. For example, under criminal law, “vagueness may invalidate a criminal law for either of two independent reasons. First, it may fail to provide the kind of notice that will enable ordinary people to understand what conduct it prohibits; second, it may authorize and even encourage arbitrary and discriminatory enforcement.”[156] The court held that a city ordinance prohibiting the use of vehicles “as living quarters” was void for vagueness because the ordinance did not define living quarters, and was broad enough to cover any driver in the city who ate food or transported personal belongs in his or her vehicle.[157] This ruling comes from the theory of Due Process. I’d argue that currently, the crypto regulations are vague enough that an honest crypto issuer would not know whether their crypto should be classified as a security if it weren’t for the SEC practice of crypto is a per se security by default regardless of the different iterations to the technology outside of Bitcoin.
Furthermore, for many aspects of the law, there is a theory that substance should prevail over form. For example, in tax law, during a reorganization, to qualify for capital gains treatment, the corporation must comply with the intent of the statutes and not just technically apply the statute.[158] In Gregory, United Mortgage Corporation was wholly owned by Gregory, and it held 1,000 shares of Monitor Securities Corporation.[159] Gregory wanted to sell the 1,000 shares of Monitor Securities Corporation but knew she would incur higher taxes if she sold it under United Mortgage as a result of the double taxation that is incurred by default to corporations.[160] Instead of selling the stock in United Mortgage, she created a spin-off corporation named Averill Corporation and transferred the 1,000 shares under the reorganization to Averill Corporation.[161] Several days later, Gregory dissolved Averill and transferred the 1,000 shares to herself, resulting in Gregory receiving liquation dividend treatment on the sale instead of higher-taxed double taxation treatment of selling under United Mortgage.[162] The Supreme Court disallowed her tax treatment because a valid reorganization requires a business purpose, stating that “the whole undertaking, though conducted according to the terms of subdivision (B), was in fact an elaborate and devious form of conveyance masquerading as a corporate reorganization, and nothing else.”[163] Similarly, I believe that even if Gensler and the SEC believe crypto may somewhat look like an investment contract and, therefore, a security under the Securities Act of 1933, in substance, it can be construed differently for the numerous reasons stated prior.
1. Authority To Rule
Let me reiterate that the SEC was never given the power to regulate crypto specifically. “Congress has the responsibility to assert its authority to control the money supply in interstate commerce.[164] The Supreme Court operates on the presumption that Congress intends to make major policy decisions and not rely on an agency to make major policy decisions.[165] However, “the SEC has decided, without Congressional authorization, that regulating cryptocurrencies is its job- and has decided to take on the new role without following the Administrative Procedure Process.”[166] “Even [though] the SEC has long acknowledged that cryptocurrencies are not investment contracts subject to their oversight.[167] But rather than explain why it changed its mind, the agency has ignored the basic requirements of reasoned decision-making for its arbitrary and capricious campaign of scorched earth litigation.[168] “The actions taken by the SEC can have grand detrimental effects, including potential preemptions of State consumer protection laws, leaving citizens without defense against people and businesses committing fraud within the crypto space.[169]
Courts should find that cryptocurrencies are not investment contracts subject to the SEC regulation under the Securities Act for two fundamental reasons. First, the SEC’s attempted arrogation of authority is a major question and violates the federalism canon. The SEC does not have clear congressional authorization to treat cryptocurrencies like investment contracts. Second, ordinary cryptocurrencies do not satisfy Howey’s test. Although there are some investment vehicles that satisfy Howey and are labeled cryptocurrencies, that is because those so-called cryptocurrencies are investment contracts by a different name. The label should not matter in determining whether a financial instrument is an investment contract under the Securities Act.[170]
In the analysis to determine whether the SEC can assert power over crypto we must first inquire whether Congress has conferred such power to the SEC.[171] We are to use the major question doctrine to analyze whether the SEC was truly conferred such power.[172]
When an agency asserts newly found authority to regulate areas of broad “economic and political significance,” courts should “hesitate before concluding that Congress meant to confer such authority.” The major question doctrine requires Congress to “speak clearly when authorizing an agency to exercise powers of vast economic and political significance.” After all, “[e]xtraordinary grants of regulatory authority are rarely accomplished through modest words, vague terms, or subtle devices.”
Major question cases tend to have several characteristics in common. First, major questions cases involve agencies asserting authority over large swaths of the American population or economy. Second, major questions cases tend to involve agencies trying to assert power in areas outside their expertise and that they had never previously regulated. Third, major questions cases tend to involve an agency settling a national debate through its rulemaking authority.[173]
Indeed, under the major question doctrine, it can be argued that the SEC can not use The Securities Act of 1933 as a catch-all for crypto because it should be considered an extraordinary case that has vast economic and political significance.[174]
To paint a more elegant picture, the Supreme Court has cited several examples where they stopped agencies from construing a statute that was outside the scope of Congress’s intent.[175]
Such cases have arisen from all corners of the administrative state. In Brown & Williamson, for instance, the Food and Drug Administration claimed that its authority over “drugs” and “devices” included the power to regulate, and even ban, tobacco products. We rejected that “expansive construction of the statute,” concluding that “Congress could not have intended to delegate” such a sweeping and consequential authority “in so cryptic a fashion.” In Alabama Assn. of Realtors v. Department of Health and Human Servs., we concluded that the Centers for Disease Control and Prevention could not, under its authority to adopt measures “necessary to prevent the…spread of” disease, institute a nationwide eviction moratorium in response to the Covid-19 pandemic. We found the statute’s language a “wafer-thin reed” on which to rest such a measure, given “the sheer scope of the CDC’s claimed authority,” its “unprecedented” nature, and the fact that Congress had failed to extend the moratorium after previously having done so.[176]
“All of these regulatory assertions had a colorable textual basis.[177] And yet, in each case, given the various circumstances, “common sense as to the manner in which Congress [would have been] likely to delegate” such power to the agency at issue, made it very unlikely that Congress had actually done so.”[178] Similarly, an application of common sense would show that Congress was thinking about stocks when they created The Securities Act of 1933 and The Securities and Exchange Act of 1934.
To provide you a brief history of the series of events: the internet was invented by the U.S. military as a military defense system in the late 1960s.[179] By 1969, a total of four computers were connected to a pre-internet innovation called the Arpanet.[180] It wasn’t until the mid-1970s that the Internet Protocol was added, allowing a lot more computers to be connected.[181] In 1983, an American named David Chaum, proposed eCash, the idea of anonymous electronic money.[182] David Chaum launched Digicash in 1989, but it failed to reach a wide spread adoption by the general public.[183] The World Wide Web was created in 1991 for public consumption.[184] An unknown individual who goes by the pseudonym Satoshi Nakamoto published a white paper called Bitcoin: A Peer-to-Peer Electronic Cash System in 2008.[185] Bitcoin was launched in 2009 as the first decentralized digital currency.[186] In 2013, Forbes named Bitcoin the best investment of the year.[187] Unless an individual in Congress in 1932 was moonlighted as a prophet, it is utterly impossible for Congress to foresee crypto and take it into account when drafting the Acts, when they could not even fathom the internet, let alone a digital currency almost a century ago.
The crypto industry’s total market value is over $3 trillion as of the time I am writing this note.[188] Today, Bitcoin has reached a new high of over $90,000,[189] increasing its market cap to $1.8 trillion.[190] “The industry has created “hundreds of thousands of new jobs,” and cryptocurrencies have the potential to take the economy to new places it has never been before.”[191] Crypto is a vast economic significance not only in America but globally.
Thus, because crypto has a vast economic and political significance, and it can reasonably be concluded that Congress was not speaking about an invention yet to be created and was instead targeting stocks and stock fraud, the SEC should not assume they have the authority to regulate crypto. “The federal courts should stop the SEC’s egregious regulatory overreach and hold that garden variety cryptocurrencies are not investment contracts under the Securities Act of 1934.”[192]
D. SEC’s New Mission is Vetting Viability
Time and time again, Gary Gensler has stated that in order for crypto to gain widespread acceptance, it must gain trust, yet the only viable solution he gives is relying on the SEC to build that trust.[193] Even though the SEC is a self-proclaimed purveyor of trust and Gary Gensler states crypto needs trust, yet can it really be said that the SEC’s actions are building trust? Based on what has been discussed in this note thus far, it can be reasonably concluded that the SEC is not attempting to build trust when the facts show that crypto crime is not as rampant as they portray,[194] millions of people have used crypto,[195] and Congress never authorized the SEC to regulate crypto.[196] One may conclude that the SEC is reaching further than a mere regulation of an assumed security when it comes to crypto, but actually vetting the viability of crypto in general.
Even from the SEC’s position that all cryptos are securities, no matter the technology used or application, the logic is still flawed. The SEC lumping all crypto into one bucket provides credence to the idea that the SEC is not trying to regulate because of fraud and disclosure reasons but because they don’t like the idea of crypto as an investment vehicle. The SEC’s position should not be one of screening the appropriateness or the worthiness of a business or investment vehicle. If a key feature of the Securities Act was to require companies offering securities to register with the SEC and provide investors with truthful disclosures of material information about the company,[197] shouldn’t the SEC’s objective be: building public trust through the prevention of fraud, not building trust through vetting? Historically, the SEC’s mission is not to vet the viability of an investment vehicle merely to make sure that security has enough information to allow investors to make informed decisions.[198]
If the SEC is vetting under the premises of crimes committed using crypto, this note has already debunked that myth. If the SEC is vetting under the premise of the negative return on investments people have incurred from crypto, again, this note has already provided a viable explanation for these events. Yet, if the SEC is vetting due to the volatility, then that is a subject we have yet to explore.
Even from the rose-colored glasses of the SEC, they should not be regulated based on the volatility of crypto, for they have no right to tell someone how to invest. If this is the case, that would mean the SEC has transitioned from regulating corporations and the securities they issue to regulating individuals and the choices they make. The SEC, should be regulating the issuers, but if they vet based on volatility, they are in a way regulating how individuals are spending their money.
Individuals and consumers have a right to spend or waste their money however they please. Under the theory of economic liberty, citizens of America are free to spend their money however they please.[199] Additionally, the majority of people understand that when something is high risk, there is a chance to lose a significant portion of their investment. Yet, even if they don’t understand that high risk correlates to potential losses, their ignorance isn’t a reason from the SEC to establish the systematic regulation of lumping all crypto together to create what should be considered a deprivation of our right to economic freedom.
IV. 2024 PRESIDENTIAL ELECTION
While every election is highly debated on major topics, the candidates in the 2024 election agreed on the unlikeliest of topics, crypto. This election was the most historic election in crypto history. Both Kamal Harris[200] and Donald Trump[201] have been the most pro-crypto candidates in American history, both campaigning in part on crypto policy. Trump received donations in crypto valued at millions of dollars.[202]
A. Vice President Kamala Harris
Vice President Kamala Harris’s plan for crypto was a lot more subdued than President-elect Donald Trump.[203] While Biden and his regulators were hard on crypto, Harris has signaled that if she were to be elected, she would be more supportive of the crypto industry than prior administrations.[204] Because Harris perceived a divide within the Democratic party on crypto, she had attempted to commit to a balancing act of staying in the middle on the issue without being too decisive.[205] One of Harris’ biggest backers, Mark Cuban, has repeatedly stated that Gary Gensler had to be removed due to his extreme action while simultaneously stating that he would be willing to replace Gary Gensler as commissioner.[206] Cuban has provided insight on his main concerns if he was conferred a chairman seat in the SEC, which includes: “the diminished amount of publicly traded companies today, the SEC’s tough handling of the crypto markets, and what he calls the agency’s tendency to “litigate to regulate.””[207] Sticking to her guns of remaining in the middle ground on crypto, Vice President Kamala Harris never clarified whether she would push for Gensler to be replaced and also never clarified that she intended to have Cuban replace him in the event Gensler is no longer chair.[208]
B. President-Elect Donald Trump
President-elect Donald Trump was by far more assertive in his promises when it came to the crypto industry than Vice President Kamala Harris.[209] Speaking at a Bitcoin conference, Trump promised that the U.S. would be the “crypto capital of the planet and the Bitcoin superpower of the world.”[210] Trump proclaimed that Bitcoin is going “to the moon,” a euphemism that became popular after Safemoon token, Dogecoin, and GameStop stock prices surged as a result of individual investors.[211] Trump proclaimed that because Bitcoin is going “to the moon,” then he “wants America to be the nation that leads the way,” he, therefore, wants to promote the U.S. to become the leader in Bitcoin “mining, minting, and being made in the US.”[212] Furthermore, Donald Trump promised that as soon as he takes the presidential office the “anti-crypto crusade” under the Biden administration will end, and he will fire Gary Gensler on day one and appoint a new SEC Chairman.[213]
One of Trump’s most interesting plans is that Trump promised to create a U.S. Bitcoin reserve similar to the country’s gold reserve.[214] The idea of a Bitcoin reserve is empowering to crypto enthusiasts because it helps legitimize Bitcoin and the crypto industry, which many believe could help boost its value and reduce its volatility.[215] Trump believes the reserve could be started by holding on to seized Bitcoin tokens that were taken from cybercriminals and darknet markets.[216] The government currently holds 164,000 Bitcoin tokens,[217] which have a current value of over $14 billion based on the current market prices.[218] Dissenters to this proposal believe that there is no guarantee that Bitcoin will increase in value or may lose all its value in the future, which would mean the reserve would be a waste of money to the U.S. and a misuse of limited resources for the government.[219] This logic may be a little misguided; value is based on demand and the willingness of a consumer to purchase at a particular price point.[220] The same logic can be applied to gold, which is merely a shiny metal that people perceive as valuable based highly on cultural customs and in part due to national reserves. The mere fact that the U.S. would create a reserve can create a cascading series of events where there is a cultural shift in the faith of crypto, thus increasing demand for the limited supply and ultimately creating a sustainable value point.
When Trump announced at the Bitcoin conference that he promised to fire Gary Gensler, the crowd went into an uproar of applause.[221] In a room full of crypto enthusiasts, it’s clear how much Gensler has affected the crypto industry negatively to enthusiasts.[222] Yet, President-elect Donald Trump’s promise to fire Chairman Gary Gensler on day one of his office is legally impossible under the Securities Exchange Act of 1934.[223] The Act protects Commissioners from removal, leaving many experts to believe that Trump can not actually fire Gensler.[224]
Legislation and landmark Supreme Court decisions, such as Humphrey’s Executor v. United States (1935), ensure that agency heads like Gensler can only be removed for cause, such as inefficiency, neglect of duty, or malfeasance. These legal safeguards protect the independence of regulatory bodies, making it highly unlikely that an executive order could bypass them. Even if Trump were to reissue a similar directive, it would face significant legal challenges and likely be overturned. His promise to “fire Gensler on day one” remains more campaign rhetoric than actionable reality.[225]
Yet, at the 56th annual conference on securities regulations, Chairman Gary Gensler said, “it’s been a great honor to serve with [the SEC], doing the people’s work, and ensuring that our capital markets remain the best in the world.”[226] He further offered a review of the work he accomplished during his tenure as SEC Chair since April 2021.[227] Many believe, based on his statements, that Gensler is planning to resign from the SEC chairman position.[228] If Gensler resigns, it’ll help Trump’s rhetoric of firing Gensler because even though he didn’t fire Gensler, his resignation ultimately will have the same effect and make his supporters, who are crypto enthusiasts and business owners, happy.
Trump promised to appoint a Bitcoin and crypto presidential advisory council tasked with designing transparent regulatory guidance.[229] In hopes of helping crypto executives who “have long complained that the industry is governed by enforcement without a clear regulatory framework.”[230] So far, Trump has named Elon Musk, the owner of Tesla, and X (formerly Twitter) and Vivek Ramaswamy to co-lead a newly created department.[231] This department is called the Department of Government Efficiency, or DOGE for short, which is a crypto token that Musk consistently promotes.[232] Although the acronym references crypto, Trump claims that the role of DOGE is to increase government efficiency.[233] “Trump said in a statement that Musk and Ramaswamy “will pave the way for my administration to dismantle government bureaucracy, slash excess regulations, cut wasteful expenditures, and restructure federal agencies.”[234] So far as President-elect, Trump has only made good on his promise in name only with a homage to the crypto community by using the DOGE acronym.
V. Speculation On Crypto’s Future
As the 2024 presidential election has turned out to be a turning point in crypto history, I believe this is the first series of many to-come cascading events that will ultimately bring us into a crypto renaissance.
A. Legitimization Through External Markets
As stated before, Coinbase, which has had many run-ins with the SEC, both good and bad, is a global crypto exchange.[235] “Founded in 2012 as a way to simplify the purchase of Bitcoin,”[236] now Coinbase supports hundreds of digital assets for trading and custody services.[237] Coinbase’s website proclaims:
We’re updating the century-old financial system by providing a trusted platform that makes it easy for people and institutions to engage with crypto assets, including trading, staking, safekeeping, spending, and fast, free global transfers. We also provide critical infrastructure for onchain activity and support builders who share our vision that onchain is the new online.[238]
Coinbase emphasizes its commitment to compliance on its website, but it has both been sued and has sued the SEC.[239] Despite their legal altercations, Coinbase had an Initial Public Offering (IPO) to the Nasdaq stock exchange authorized by the SEC on April 14, 2021, ending the day with a market capitalization of $62 billion.[240] Coinbase current market capitalization is $74.15 billion.[241]
Although an exchange on an exchange seems somewhat paradoxical, it accomplishes many objectives. First, from a business standpoint, allowing Coinbase to raise capital in the stock market; second it allows Coinbase to become more readily known by the general public and thus crypto by association. The marketing of the crypto and the industry is half the battle, in my opinion, in gaining acceptance. Coinbase being placed in the public eye provides a sense of legitimacy to crypto in the public eye since it is being traded on one of the world’s most trusted and used markets.
Another initiative taken in external markets is exchange-traded funds (ETFs) and exchange-traded products (ETPs). On January 10, 2024
the Securities and Exchange Commission approved a series of proposed rule changes that will allow for the listing and trading of bitcoin-based products on national securities exchanges… The proposed rule changes were filed pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) and applicable rules thereunder to list and trade shares of trusts that would hold spot bitcoin.[242]
The uphill battle for Bitcoin ETFs in the U.S. began in 2013 when an entity affiliated with the Winklevoss twins (Myspace and Gemini crypto exchange founders) sent the first application to the SEC.[243] All applications were rejected until 2021, under the grounds that Bitcoin’s unregulated nature creates too much risk for investors.[244]
However, the crypto community became extremely excited once BlackRock, a giant in the investment community, announced it would be applying for a spot Bitcoin product in June 2023.[245] “A spot Bitcoin ETF is a type of financial product that holds actual Bitcoin as its underlying asset. The financial product allows users to gain exposure to Bitcoin’s price movements without the need to acquire and store the cryptocurrency themselves.[246] BlackRocks’s spot Bitcoin ETF, iShares Bitcoin Trust (IBIT), was approved by the SEC on January 11, 2024.[247]
IBIT aims to provide a direct avenue for diverse users, ranging from asset managers to financial advisers, to engage with bitcoin. It is designed to mitigate obstacles and operational complexities associated with participating in bitcoin. The ETF uses custodian services offered by a digital asset platform and follows bitcoin prices using a reference rate that gathers information from reliable digital asset platforms around the world.[248]
IBIT currently holds a little over 495,000 Bitcoin tokens, which is valued at a little over $48 billion.[249] BlackRock is marketing IBIT to both individual investors and institutional investors in partnership with Coinbase, which helps “remove the operational, tax, and custody complexities of holding Bitcoin directly.”[250] Regarding the marketing to institutional investors, BlackRock states that “83% of millennial millionaires hold crypto.[251] In general, millennial investors are more likely to hold crypto than stocks or mutual funds.”[252] BlackRock also states that investing in IBIT will allow institutional investors to “future-proof” their practice because “crypto has grown to a $1T+ asset class in a decade – attract to the next generation of investors who may favor crypto over other traditional asset classes.”[253]
The exposure that crypto is getting in other markets will allow people to become more familiar with crypto in general. Crypto will gradually no longer be the boogieman investment because with awareness comes knowledge, which will shed light on some of the myths that have encompassed crypto until this point. I believe that in the future, more and more crypto ETPs will be created, and most presumably, more and more Bitcoin and Ethereum ETFs will be created in the markets. Eventually, this will spread to other coins and digital assets. I project that the long-term holding of such assets by institutional investors will also eventually lower the volatility of the crypto, which will become a reinforcing cycle of individual investors wanting to invest in crypto through both the ETFs and the tokens themselves.
B. Legitimization Through The Use As A Currency
Just like how President-elect Donald Trump allowed donors to donate crypto as an alternative to fiat cash, crypto is more than a good, a service, or an offering; inherent in the term, cryptocurrency is currency, and mass adoption will proliferate if it is used more as such. Retail businesses and service providers must recognize that it is not a barter system that crypto is trying to facilitate but merely an alternative payment to fiat currency. Specifically, a mass adoption by retail and e-commerce stores such as Walmart, Target, and Amazon will allow people to be introduced to cryptocurrency and its benefits at an increased rate.
Amazon has partnered with Ripple Labs for their Amazon Web Services (AWS), Amazon’s business cloud service, which is huge for crypto lovers because of the exposure.[254] Many, including my circle of friends, have high hopes that Amazon will adopt Ripple Labs’s XRP token as an acceptable payment method on their store side. So far, there have been rumors, but nothing has been officially confirmed.[255]
A Study by CoinLedger, a crypto tax software business, has found BitPay lists 400 major companies as accepting cryptocurrency as a method of payment.[256] 76 of the companies are retail and e-commerce companies, 72 companies are classified as food and dining, 38 travel and hospitality companies, and there are 35 luxury retail companies on this list that accept crypto as a method of payment[257]
Additionally, people are beginning to accept crypto as a form of salary payment, especially professional athletes. In November of 2021, NFL player Odell Beckham Jr. stated he would take his $750,000 salary in Bitcoin.[258] Other notable NFL players who had all or part of their salary paid in crypto are Aaron Rodgers and Russel Okung.[259] NBA’s Golden State Warriors Klay Thompson and Andre Iguodala both said they also receive all or part of their salary in crypto.
This trend of big organizations providing compensation, especially to people in key positions, will become more adopted as time goes by. Receiving crypto as compensation cuts out the time, expense, and fees of purchasing the crypto on their own. As crypto acceptance becomes more prevalent in society, individuals in a position to negotiate upon employment can negotiate part or all of their income into crypto as well.
C. Legitimization Through Regulations
On December 4, 2024, Hawk Tuah (HAWK) coin was launched as a memecoin by Hailey Welch, who became a viral sensation after a street interview of her was posted on social media.[260] Memecoins are a type of cryptos that are inspired by internet memes, such as Dodgecoin (DOGE), Shiba Inu (SHIB), and Pepe (PEPE).[261] Hailey went from obscurity to overnight celebrity status due to the viral video, and she decided to capitalize on this newfound stardom by creating a memecoin based on the meme she is known for. Since Welch launched HAWK, there has been widespread outrage, especially from investors, because many believe Hailey and her team pumped and dumped the crypto at the launch, leading many to accuse her of insider trading[262] The market cap peaked at $490 million on December 4, 2024, the day of her launch[263] then plummeted, and as of the time of my writing this, on December 16, 2024, HAWK has a current market cap of $65,695.[264]
The Hawk Tuak (HAWK) memecoin was launched at 10:00 pm UTC on Dec. 4 and quickly rose to a peak market cap of $490 million.
The price of the token then plummeted and was trading at a valuation of $41.7 million at the time of publication, marking a 91% downturn in less than three hours, according to DexScreener data.
According to aggregated data from Bubblemaps and Dexscreener, a mix of insider wallets and snipers — entities that rapidly buy up huge amounts of a token’s supply at launch — controlled between 80%-90% of HAWK’s supply at launch.
According to data from Solana block explorer Solscan, one wallet managed to snipe HAWK seconds after launch, purchasing 17.5% of the supply of the memecoin for 4,195 Wrapped Solana (WSOL) — worth $993,000 at the time.
Over the next one-and-a-half hours, the wallet sold 135.8 million HAWK tokens for a profit of $1.3 million.[265]
Welch and her HAWK coin is actually not an isolated incident in the crypto space; such criminal activity has been a growing concern in the memecoin community as of late because content creators are realizing they can use their followers and platform to make a quick buck.
As you may be able to tell from the general tone of this note, I believe that crypto should not be regulated by securities laws for many reasons, including the economic barriers that are inherent in registering with the SEC. Yet, I strongly believe that crypto must be regulated. Because the crypto market is a cornucopia of potential for investors, it is also the perfect feeding ground for those looking to take advantage of others. In my opinion, because the crypto market doesn’t operate like the stock market, where it operates in practice during business days and instead is constantly in operation similar to the internet, it should be accorded its own governmental agency that can create regulations that can adapt to the ever dynamic changes within the crypto space. The registration process for disclosing information about new cryptos should not be a multimillion-dollar process. Furthermore, the drafters should learn from the SEC’s mistake and be cognizant that complexity is not key; innovation is fueled when innovators have clear guidelines on how they can create within the bounds of the law. Most innovators are not lawyers; they will need the regulation to be a clear road map of compliance that a reasonable person can follow. Additionally, in order for these new regulations to work, it will require a robust market surveillance and enforcement provision. To combat a lot of the market manipulation that takes place, memecoin pump and dumps, fraud, and all other crypto crimes being committed, the agency can expand upon common law fraud, consumer law, and banking law.
CONCLUSION
Absolutely no one would argue that the great depression was not tragic and a dark period in American History. The problem back then was stocks and the government’s laissez-faire loose regulation of the market. What came about because of the Great Depression was the SEC, which was to bring regulation to the chaos. Was it perfect? No, nothing is perfect, but for the most part, it brought a semblance of uniformity within the market that cracked down on overt acts of fraud. But no matter how regulated something is, where there is profit to be made, there will most assuredly be crime to be found. The same sentiment can be said for many markets, many transactions, many industries, and even the field we hold dear to our hearts, the law; there are and will always be bad actors.
Although fraud, deceit, and crime is ever present in society, and, by default, will be connected with every innovation, including crypto, it is not enough justification for SEC to cut corners for the “greater good.” In a world of chaos, government bodies and agencies should be the guiding light, allowing us to make it through the storm.
With the Post-election crypto bull run that is bound to happen, should crypto be regulated in some shape or form? Definitely. But should it be regulated by an old law to regulate securities? Probably not. The Securities Act of 1933 and the Securities Exchange Act of 1934 are some of the SEC’s greatest hits, but that doesn’t mean it should be applied as a stop-gap solution to prevent fraud for crypto. In the internet era and the ever-changing innovations with crypto and blockchain technologies, crypto should be regulated in a more dynamic way that is cost-efficient, has clear instructions and thresholds allowing innovators without a legal background to work within the clear bounds of the law, and promotes innovation instead of impeding it.
With Donald Trump winning the Presidential Election and making broad promises to the crypto community, this is the perfect opportunity for the crypto community to push for new regulations and guidelines to promote an ethical crypto community that is sustainable, bringing the crypto era into cultural legitimacy and a global renaissance.
[1] Loyola University Chicago School of Law Alumni. Founder and CEO of Empirecal Business Consulting LLC, COO and Business Strategist of V Rehab Services LLC. Thank you to Professor Patricia Lee and Dean Samuel Brunson for being accommodating by allowing me to supplement a class for this article, which allows me to qualify for a Transaction Certificate. Special thanks to Professor Steven Ramirez for conducting this Directed Study with me and giving me monumental guidance on this article.
[2] Innovation definition & meaning, Merriam-Webster (2024), https://www.merriam-webster.com/dictionary/innovation.
[3] Amy Kapczynski, The Law of Informational Capitalism, 129 Yale L.J. 1460, 1480 (2020). The author states that it was Karl Marx and his successors who popularized the term “capitalism.” (“to denote “modern society in which the majority of the population meets its needs through specialized production in a complex division of labor determined through commercial exchange. In a capitalist society, both workers and producers “depend on the market” for access to the means of production. Appropriation of surplus depends critically on the mechanisms of the market”).
[4] Janelle Howell, Our Services & What We Treat, https://www.vaginarehabdoctor.com/our-services/.
[5] The Investopedia Team, What is a laissez-faire economy, and how does it work? Investopedia (2024), https://www.investopedia.com/terms/l/laissezfaire.asp#:~:text=Laissez%2Dfaire%20is%20an%20economic,as%20a%20whole%2C%20will%20be. (“Laissez-faire is an economic theory dating back to the 18th century that opposes any government intervention in business affairs. The driving principle behind laissez-faire economics is that the less the government is involved in the economy, the better off business, and society as a whole, will be”).
[6] Id.
[7] A point of view: Why capitalism hasn’t triumphed, BBC News (2014), https://www.bbc.com/news/magazine-29951222.
[8] John F. Henry, The Ideology of the Laissez Faire Program, 42 J. Econ. Issues 209, 210.
[9] A point of view: Why capitalism hasn’t triumphed, BBC News (2014), https://www.bbc.com/news/magazine-29951222.
[10] Greg IP, America Is Sliding Toward Chinese-Style Capitalism, The Wall Street Journal (Mar. 21, 2024), https://www.wsj.com/economy/america-is-sliding-toward-chinese-style-capitalism-fff67df4. The author used several actions the government has attempted to impose, such as Tiktok’s banning, deciding if a foreign business can purchase United States Steel, and the decision to give Intel $8.5 billion, as outliers that indicate that the economy is heading toward a state-based capitalism structure similar to China. The author goes further to iterate that America’s state-based communism is being skewed by politics and who is in office, which ultimately complicates market decisions that may not have proceeded if it weren’t for the government’s intervention. (“This isn’t China, and neither Trump nor Biden can simply dictate their preferred outcome to companies. But the expectation that they will try changes how business behaves”).
[11] LiveNow from Fox, Ted Cruz Gun Control: Guns Don’t Kill People But People Do, YouTube (2021), https://www.youtube.com/watch?v=bmFq1c05JnQ.
[12] CNBC Television, SEC Chair Gary Gensler on crypto: This field will not long persist without investor protection, YouTube (2024), https://www.youtube.com/watch?v=Rl628OFEGWA&t=203s.
[13] Greg IP, supra note 10.
[14] History.com Editors, Securities and Exchange Commission, History.com (2010), https://www.history.com/topics/us-government-and-politics/securities-and-exchange-commission.
[15] Id.
[16] Elisabeth Keller, Introductory Comment: A Historical Introduction to the Securities Act of 1933 and the Securities Exchange Act of 1934, 49 Ohio S. L.J. 329, 331 (1988).
[17] Id. (quoting M. Parish, Securities Regulations and the New Deal 3 (1970)),
[18] Id.
[19] Id.
[20] Id.
[21] Id. at 332
[22] Id. at 335. The author states that the typical offering contained little of the information needed to estimate the worth of a security. The circular provided little information about the use of the proceeds, a brief description of the security, and very few facts relating to the issuer, if any.
[23] Id.
[24] Id. at 336
[25] Id.
[26] History.com Editors, supra note 14.
[27] Id.
[28] Id.
[29] Keller, supra note 16, at 338.
[30] Id. (citing Address to Congress by Franklin D. Roosevelt (March 1933), reprinted in M. Parrinoo, Truth in Securities 23 (1968).
[31] Id.
[32] Id.
[33] Id. at 342 (citing Securities Act §§ 3,4, 15 U.S.C. §§ 77d, 77e (1982)).
[34] Id.
[35] Id. (citations omitted)
[36] Id. at 343.
[37] Id. (citing Ruder, Civil Liability Under Rule 10b-5: Judicial Revision of Legislative Intent?, 57 Nw. U.L. Rev. 627, 649 (1963)).
[38] Id.
[39] Id. (citing Securities Act § 6, 15 U.S.C. § 77f (1982)).
[40] Id.
[41] Id. at 344 (citing Securities Act § 5(c), 15 U.S.C. § 77e(c) (1982)).
[42] Id. (citing Securities Act § 5(b), 15 U.S.C. § 77e(b) (1982)).
[43] Id. (citing Securities Act § 23, 15 U.S.C. § 77w (1982)).
[44] Id.
[45] Id.
[46] Id. at 347.
[47] Id.
[48] Id. (citing Tracy & MacChesney, The Securities Exchange Act of 1934, 32 Mich. L. Rev. 1025, 1039 n. 24 (1934)).
[49] Id. (citing Exchange Act § 4, 15 U.S.C. § 78d (1982)).
[50] Id. at 348 (citing J. Seligman, The Transformation of Wall Street 25 (1982)).
[51] Id. (citing J. Seligman, The Transformation of Wall Street 55 (1982)).
[52] Carol Goforth, The Securities and Exchange Commission and Cryptoassets a Study in Irony, 87 Alb. L. Rev. 55 (2024). (citing Structured Disclosure at the SEC: History and Rulemaking, SEC,
https://www.sec.gov/page/osdhistoryandrulemaking [https://perma.cc/T3NS-TXKQ] (Aug. 11,
2023)).
[53] Neal Newman & Lawrence Trautman, Securities Law: Overview and Contemporary Issues, 16 Ohio St. Bus. L.J. 149 (2021).
[54] About, SEC (2019), https://perma.cc/TY77-3ZWX?type=standard.
[55] Carol R. Goforth, Regulation of Crypto:Who is the SEC Protecting?, 58 Am. Bus. L.J. 643, 647.
[56] CNBC Television, supra note 12.
[57] Jacob E. Simmons, Reconciling Disjunct Cryptocurrency Securities Enforcement with Purchaser Expectation, 47 Seattle U. L. Rev. 1745, 1761 (citing 15 U.S.C § 77e(a)).
[58] Id at 1762 (citing 17 C.F.R. § 240.10b-5 (2024).
[59] Goforth, supra note 52, at 57.
[60] Id.
[61] Newman & Trautman, supra note 53, at 157.
[62] Goforth, supra note 52, at 58. (citing Tcherepnin v. Knight, 389 U.S. 332, 335-36 (1967).
[63] Id.
[64] Id. (citing Framework for “Investment Contract” Analysis of Digital Assets, SEC, https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets [https://perma.cc/6T3X-8NTJ] (Mar. 8, 2023)).
[65] Newman & Trautman, supra note 53, at 159. (citing Securities Act of 1933 § 2(a)(1)-(19), 15 U.S.C. §77b (2021).
[66] Goforth, supra note 52, at 59. (citing SEC v. W.J. Howey Co., 328 U.S. 293, 398 (1946).
[67] SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946).
[68]Newman & Trautman, supra note 53, at 160.
[69] W.J. Howey Co., supra note 67, at 295
[70] Newman & Trautman, supra note 53, at 160.
[71] Id. (citing SEC v. W.J. Howey Co., 328 U.S. 293, 298-99 (1946).
[72] Goforth, supra note 52, at 59.
[73] Id. (author states in note 31, that the “expectation of profit” has been litigated several times citing cases including United Housing Foundation, Inc. v Forman, where the court held that in order for this element to be satisfied “the primary motivation for investing must be to achieve a return on the value invested.” See United Hous. Found., Inv v. Foreman, 421 U.S. 837, 856-57 (1975).
[74] Newman & Trautman, supra note 53, at 160.
[75] Goforth, supra note 52, at 62.
[76] Id. The author states that DAO used a “unique business model,” were purchases acquired DAO Tokens, which gave them voting power to decide collective investment endeavors. These endeavors emulated investment vehicles that the SEC has historically regulated. Arguing that because this is a niche within the crypto space, all crypto assets should not be overgeneralized and thus regulated by a niche business model.
[77] Id. (citing Michael Mendelson, From Initial Coin Offering to Security Tokens: A U.S. Federal Securities Law Analysis, 22 Stan. Tech. L. Rev. 52, 54-55 (2019)).
[78] Id. at 63 (citation omitted).
[79] Id. (citing See William Hinman, Dir., SEC Div. of Corp. Fin., Digital Asset Transactions: When Howey
Met Gary (Plastic) (June 14, 2018), https://www.sec.gov/news/speech/speech-hinman-061418
[https://perma.cc/H3YU-DX3K]).
[80] Id. (citing Id.).
[81] Id. (citing Id.).
[82] Id. (citing Id.).
[83] Id. at 64 (citing Neeraj Agrawal, SEC Chairman Clayton: Bitcoin Is Not a Security, COIN CENTER (Apr. 27, 2018), https://www.coincenter.org/sec-chairman-clayton-bitcoin-is-not-a-security/ [https://perma.cc/S8MF-7AKH].)
[84] Id. (citing Id.)
[85] Goforth, supra note 55, at 651.
[86] Goforth, supra note 52, at 66 (citing Framework for “Investment Contract” Analysis of Digital Assets, SEC, https://www.sec.gov/corpfin/framework-investment-contract-analysis-digital-assets [https://perma.cc/6T3X-8NTJ] (Mar. 8, 2023).
[87] Goforth, supra note 55, at 651 (citations omitted).
[88] Goforth, supra note 52, at 66-67
[89] Id. at 68.
[90] Goforth, supra note 55, at 652
[91] Id. (citations omitted).
[92] Id. at 653.
[93] Id.
[94] Id.
[95] Id.
[96] Id. at 656.
[97] Id.
[98] Id. at 658.
[99] Mission, SEC, https://www.sec.gov/about/mission.
[100] Id.
[101] Id.
[102] Id.
[103]Declan Harty, ‘Shark Tank’: Mark Cuban goes after the SEC’s Gensler, Politico (2024), https://www.politico.com/news/2024/10/11/mark-cuban-gary-gensler-fight-sec-future-harris-00183090.
[104] Kristen Altus, SEC Commissioner Confesses Its Crypto Approach Has Fueled ‘Disaster For The Whole Industry’, Fox Business (Oct. 10, 2024), https://www.foxbusiness.com/media/sec-commissioner-confesses-crypto-approach-has-fueled-disaster-whole-industry. (citations omitted).
[105] The Editorial Board, The Surveillance and Exchange Commission, The Wall Street Journal (2024), https://www.wsj.com/opinion/gary-gensler-securities-and-exchange-commission-regulation-firms-traders-personal-phones-3d703ca6?mod=Searchresults_pos16&page=1. The article insinuates that Gary Gensler doesn’t believe he has a limit to his power because he and the SEC have fined five dozen firms about $2 billion for allegedly violating record-keeping rules. The companies were accused of promoting improper communication within the companies because employees discussed business on non-work phones, even though almost all of the companies had policies in place prohibiting such actions.
[106] Altus, supra note 104. (citations omitted)
[107] Harty, supra note 103.
[108] SEC Enforcement of Cryptocurrency Reaches a New High, Cornerstone Research (2024), https://www.cornerstone.com/insights/press-releases/sec-enforcement-of-cryptocurrency-reaches-a-new-high/.
[109] Id.
[110] Id.
[111] Id.
[112] Goforth, supra note 52, at 69. (citations omitted).
[113] Id. at 68.
[114] Id. at 69.
[115] Id.
[116] Id. (citations omitted)
[117] Id. at 70. (citations omitted)
[118] Goforth, supra note 52, at 63.
[119] Goforth, supra note 55, at 647.
[120] Simmons, supra note 57, at 1760.
[121] Goforth, supra note 55, at 646.
[122] D. T. Morton, The Future of Cryptocurrency: An Unregulated Instrument in an Increasingly Regulated Global
Economy, 16 Loy. U. Chi. Int'l L. Rev. 129 (2020).
[123] Weilun Soon and Elaine Yu, Chinese Gangs Use Cryptocurrencies to Launder Billions, The Wall Street Journal (2024), https://www.wsj.com/finance/currencies/chinese-gangs-use-cryptocurrencies-to-launder-billions-5749f44e. Chinese crime syndicates are using crypto to facilitate crimes such as money laundering money that was generated through selling illegal drugs in the United States. While this is a new age of money laundering and crime by leveraging crypto, it is providing investigators new opportunities to track cash flows since crypto transactions are recorded on a public ledger.
[124] Mengqi Sun and David Smagalla, Cryptocurrency-Based Crime Hit a Record $14 Billion in 2021, The Wall Street Journal (2002), https://www.wsj.com/articles/cryptocurrency-based-crime-hit-a-record-14-billion-in-2021-11641500073. The authors state that in 2021, the transactions of crypto were $15.8 trillion, which was up 567% from 2020, while illicit transactions totaled $14 billion in 2021, up 79% from 2021. Illicit transactions made up a fraction of the total transactions, equaling 0.15% of all transactions.
[125] Id.
[126] World GDP, Trading Economics (2024), https://tradingeconomics.com/world/gdp. (citing the World Bank as its source).
[127] 2024 Global Financial Crime Report, NASDAQ Verafin (2024), https://verafin.com/nasdaq-verafin-global-financial-crime-report/. (citing a report created by NASDAQ as the source of their data).
[128] Bryan A. Garner, Fraud, Black’s Law Dictionary (12th ed. 2024) (Westlaw).
[129] SEC Charges NovaTech and is Principals and Promoters with $650 Million Crypto Fraud, SEC (Aug. 12, 2024), https://www.sec.gov/newsroom/press-releases/2024-95.
[130] Id.
[131] Assad Jafri, SEC Charges NovaTech Founders, Promoters With $650 Million Crypto Fraud, CryptoSlate (Aug. 12, 2024), https://cryptoslate.com/sec-charges-novatech-founders-promoters-with-650-million-crypto-fraud/.
[132] Id.
[133] CNBC Television, supra note 12.
[134] Simmons, supra note 57, at 1753.
[135] Michelle Faverio, Wyatt Dawson, and Olivia Sidoti, Majority of Americans aren’t confident in the safety and reliability of cryptocurrency, Pew Research Center (Oct. 24, 2024), https://www.pewresearch.org/short-reads/2024/10/24/majority-of-americans-arent-confident-in-the-safety-and-reliability-of-cryptocurrency/.
[136] Id. The report indicates that crypto use by income level is as follows: upper-income household at 23%; middle-income households at 18%; while lower-income households
[137] Id. Of those who have invested previously, 61% state they still currently have crypto, while 39% do not have any crypto held. Of the individuals who have used crypto, the percentage of households that still actively own crypto are 64% of the upper-income, 67% middle-income, and 49% lower-income.
[138] Simmons, supra note 57, at 1750.
[139] Id. at 1751.
[140] Gurbir S. Grewal, What’s Past is Prologue: Enforcing the Federal Securities Laws in the Age of Crypto, 15 Wm. & Mary Bus. L. Rev. 475, 481 (2024).
[141] Faverio et al., supra note 125. 38% of Americans who have used crypto say their investment have done worse than expected, 37% say that their crypto investments did about as expected, while 20% say they did better than expected. The 38% worse than expected is a significant decrease from the poll conducted a year prior by Pew Research, which indicated 45% of Americans thought their crypto investment did worse than expected.
[142] Simmons, supra note 57, at 1753.
[143] Id. at 1748 note 10.
[144]Eleanor Terrett, X (formerly known as Twitter) (Mar. 2, 2023), https://x.com/EleanorTerrett/status/1631403307984879621?s=20
[145] Simmons, supra note 57, at 1767. (citations omitted).
[146] CNBC Television, supra note 12.
[147] Simmons, supra note 57, at 1767
[148] Id. (citations omitted).
[149] Id.
[150]Eric Wessan and Phil Pillari, Problems With Rulemaking By District Court Enforcement Action: The SEC’s Improper Cryptocurrency Regulation, 31 Harv. J.L. & Pub. Pol'y Per Curiam 1, 2 (2024).
[151] Goforth, supra note 52, at 65 (citing Nikhilesh De, SEC Chairman Gensler Agrees with Predecessor: 'Every ICO Is a Security', COINDESK, https://www.coindesk.com/markets/2021/08/03/sec-chairman-gensler-agrees-withpredecessor-every-ico-is-a-security/ [https://perma.cc/D5GC-FZDL] (Sept. 14, 2021, 1:34 PM)).
[152] Goforth, supra note 52, at 65 (citing Katelynn Bradley, Annmarie Conboy-DePasquale, & Travis Norton, SEC Chair Gensler Signals Greater Regulation of Cryptocurrency Under Existing Authorities, Brownstein (Sept. 22, 2021), https://www.bhfs.com/insights/alerts-articles/2021/sec-chair-gensler-signals-greaterregulation-of-cryptocurrency-under-existing-authorities [https://perma.cc/LLA6-C9GB]).
[153] Wessan and Pillari, supra note 150, at 1.
[154] CNBC Television, supra note 12.
[155] Wessan and Pillari, supra note 150, at 1
[156] Desertrain v. City of L.A., 735 F.3d. 1147, 1155 (9th Cir. 2014).
[157] Id.
[158] Gregory v Helvering, 293 U.S. 465, 468 (1935).
[159] Id. at 467.
[160] Id.
[161] Id.
[162] Id.
[163] Id. at 470.
[164] Wessan and Pillari, supra note 150, at 5.
[165] W. Virginia v. Envtl. Prot. Agency, 597 U.S. 697, 723 (2022). (citing United States Telecom Assn. v. FCC, 855 F.3d 381, 419 (CADC 2017).
[166] Wessan and Pillari, supra note 150, at 5.
[167] Id.
[168] Id.
[169] Id.
[170] Id. at 4. (citations omitted).
[171] W. Virginia, supra note 165, at 721.
[172] Id.
[173] Wessan and Pillari, supra note 150, at 3. (citations omitted).
[174] W. Virginia, supra note 162 at 721. (citations omitted)
[175] Id.
[176] Id.
[177] Id.
[178] Id.
[179] History.com Editors, The Invention of the Internet, History (June 11, 2024), https://www.history.com/topics/inventions/invention-of-the-internet.
[180] Id.
[181] Id.
[182] Julie Pinkerton, The History of Bitcoin, US News (Oct. 23, 2024), https://money.usnews.com/investing/articles/the-history-of-bitcoin.
[183] Id.
[184] History.com Editors, supra note 179.
[185] Pinkerton, supra note 182.
[186] Id.
[187] Id.
[188]Abhijeet Kumar, What Is Driving Bitcoin’s Rally as It Surges Past The $89,000 Milestone?, Business Standard (Nov. 12, 2024), https://www.business-standard.com/finance/news/what-is-driving-bitcoin-s-rally-as-it-surges-past-the-89-000-milestone-124111200500_1.html.
[189]Krisztian Sandor and James Van Straten, Bitcoin Surges to New Record Over $93k as Strong U.S. Demand Crushes Resistance Level, CoinDesk (Nov. 13, 2024), https://www.coindesk.com/markets/2024/11/13/bitcoin-surges-to-new-record-over-93k-as-strong-us-demand-crushes-resistance-level/.
[190] Bitcoin, Coinbase (Nov. 13, 2024), https://www.coinbase.com/price/bitcoin.
[191] Wessan and Pillari, supra note 150, at 5.
[192] Id. at 2.
[193] CNBC Television, supra note 12.
[194] Sun and Smagalla, supra note 124.
[195] Simmons, supra note 57, at 1753.
[196] Wessan and Pillari, supra note 150 at 4.
[197] Grewal, supra note 140 at 479.
[198] Keller, supra note 16, at 343
[199] James W. Ely Jr., The Constitution and Economic Liberty, 35 Harv. J.L. & Pub. Pol'y 27, 32 (2012). The author explains that the Framers of the Constitution and the Bill of Rights took it upon themselves to ensure that property, including cash, was to confer on itself a bundle of rights that was precluded from state impairment without compensation.
[200] Jasper Goodman, Harris Crypto Pitch Keeps Divided Democrats at Bay, Politico (Sept. 26, 2024), https://www.politico.com/news/2024/09/26/harriss-crypto-pitch-dems-election-00181254.
[201] Vicky Ge Huang and Caitlin Ostroff, Trump Adds Crypto to His ‘America First’ Agenda, The Wall Street Journal (July 27, 2024), https://www.wsj.com/politics/elections/trump-adds-crypto-to-his-america-first-agenda-71ceb046.
[202] Caitlin Ostroff and Vicky Ge Huang, Trump Campaign Brings In $5 Million in Crypto From Individuals in Third Quarter, The Wall Street Journal (Oct. 16, 2024), https://www.wsj.com/livecoverage/stock-market-today-dow-sp500-nasdaq-live-10-16-2024/card/trump-campaign-brings-in-7-5-million-in-crypto-in-third-quarter-jb9ZsEDmTUtNUanXTWQV?mod=Searchresults_pos3&page=1.
[203] Goodman, supra note 200.
[204] Id.
[205] Id.
[206] Harty, supra note 103.
[207] Id.
[208] Id.
[209] Huang and Ostroff, supra note 201.
[210] Bloomberg Television, Donald Trump Pledges to Fire SEC’s Gensler, Make US ‘Crypto Capital,’ YouTube (July 28, 2024), https://www.youtube.com/watch?v=_TmuLMwfwSM.
[211] Id.
[212] Id.
[213] Id.
[214] Vicky Ge Huang, Crypto Fans Want a Bitcoin Reserve. Politicians Want Their Votes, The Wall Street Journal (Aug. 9, 2024), https://www.wsj.com/politics/elections/bitcoin-strategic-reserve-election-2024-1a431a41?mod=article_inline.
[215] Id.
[216] Id.
[217] Id.
[218] Coinbase, supra note 190.
[219] Huang, supra note 214.
[220] Lisa Anthony, How to Price a Product, Nerdwallet (2023), https://www.nerdwallet.com/article/small-business/how-to-price-a-product.
[221] Huang and Ostroff, supra note 201.
[222] Id.
[223] Tonya Evans, Can Trump Bypass Legal Hurdles To Fire Gensler? The Risks For Crypto, Forbes (Nov. 14, 2024), https://www.forbes.com/sites/tonyaevans/2024/11/14/can-trump-bypass-legal-hurdles-to-fire-gensler-the-risks-for-crypto/.
[224] Id.
[225] Id.
[226] Bob Pisani, Gary Gensler Says He Was ‘Proud to Serve’ As SEC Chair, Defends His Approach to Crpyto Regulation, CNBC (Nov. 14, 2024), https://www.cnbc.com/2024/11/14/gary-gensler-reviews-accomplishments-was-proud-to-serve-as-sec-chair.html.
[227] Id.
[228] Id.
[229] Huang and Ostroff, supra note 201.
[230] Id.
[231] Daniel Trotta and Eric Beech, Trump Names Elon Must to Lead Government Efficiency Drive, Reuters (Nov. 13, 2024), https://www.reuters.com/world/us/trump-says-elon-musk-vivek-ramaswamy-will-lead-department-government-efficiency-2024-11-13/.
[232] Id.
[233] Id.
[234] Id.
[235] About, Coinbase (2024), https://www.coinbase.com/about.
[236] Ari Levy, Coinbase Closes At $328.28 Per Share In Nasdaq Debut, Valuing Crypto Exchange At $85.8 Billion, CNBC (2021), https://www.cnbc.com/2021/04/14/coinbase-to-debut-on-nasdaq-in-direct-listing.html.
[237] Supported Cryptocurrencies and Trading Pairs, Coinbase, https://help.coinbase.com/en/prime/trading-and-funding/supported-cryptocurrencies-and-trading-pairs.
[238] Coinbase, supra note 235.
[239] Id.
[240] Levy, supra note 236.
[241] Coinbase Global, Inc., Yahoo Finance (2024), https://finance.yahoo.com/quote/COIN/
[242] Caroline A. Crenshaw, Statement Dissenting from Approval of Propose Rule Changes to List and Trade Spot Bitcoin Exchange-Traded Products, SEC (Jan. 10, 2024), https://www.sec.gov/newsroom/speeches-statements/crenshaw-statement-spot-bitcoin-011023#:~:text=Evidence%20has%20shown%20that%20spot,manipulation%20or%20that%20there%20are.
[243] Kyle Torpey, Spot Bitcoin ETFs Are Approved by SEC, Cleared TO Start Trading Thursday, Investopedia (Jan. 10, 2024), https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670
[244] Id.
[245] Id.
[246] What is Black Rock’s IBIT Spot Bitcoin ETF?, Coinbase (2024), https://www.coinbase.com/learn/crypto-glossary/what-is-blackrocks-ibit-spot-bitcoin-etf.
[247] Torpey, supra note 243.
[248] Id.
[249] iShares Bitcoin Trust ETF, BlackRock (2024), https://www.blackrock.com/us/individual/products/333011/ishares-bitcoin-trust.
[250] iShares, BlackRock (2024), https://www.blackrock.com/us/financial-professionals/investments/products/bitcoin-investing#About-IBIT.
[251] Id.
[252] Id.
[253] Id.
[254] AWS Partner Profile: Ripple, Amazon Web Service, https://aws.amazon.com/partners/success/ripple/.
[255] TopCryptoNews, Ripple’s XRP Skyrockets as Amazon Announces Strategic Partnership, Binance (Aug. 14, 2023), https://www.binance.com/en/square/post/966347.
[256] Santiago Pardo, Study Uncovers Which Industries Accept Cryptocurrency Aws Payment Option, International Accounting Bulletin (Mar. 18, 2024), https://www.internationalaccountingbulletin.com/news/study-uncovers-which-industries-accept-cryptocurrency-as-payment-option/.
[257] Id.
[258] Matthew Fox, Odell Beckham Jr. Is Leading A New Class of Athletes Getting Paid In Bitcoin, Business Insider (Jan. 31, 2022), https://markets.businessinsider.com/news/currencies/professional-athletes-bitcoin-crypto-salary-risks-btc-odell-beckham-2022-1.
[259] Charles Curtis, 6 NFL Players Who Got Paid In Bitcoin and Cryptocurrency, Yahoo! Finance (Nov. 14, 2024), https://finance.yahoo.com/news/6-nfl-players-got-paid-153207410.html.
[260] Tom Mitchelhill, Hawk Tuah Memecoin Dumps 90% Amid Backlash Over Controversial Launch, Cointelegraph (Dec. 5, 2024), https://cointelegraph.com/news/hawk-tuah-memecoin-dumps-90-percent-outrage-token-launch-insider.
[261] What is a Memecoin?, Coinbase, https://www.coinbase.com/learn/crypto-basics/what-is-a-memecoin
[262] Mitchelhill, supra note 260.
[263] Id.
[264] Hawk Tuah (hawktuuuah.com) Price (HAWK), Coinbase (Dec. 16, 2024), https://www.coinbase.com/price/hawktuuuah
[265] Mitchelhill, supra note 256.
