Just this month, the SEC made a trip to El Salvador to help establish a “cross-border regulatory sandbox.” This beautiful collaborative effort is just the tip of the iceberg. If so, are these examples of true collaboration? Or, are we really trying to prevent the U.S. from imposing its will on El Salvador’s new and developing crypto experiment? The involvement of actors such as a former Goldman Sachs partner just adds to the suspense.

Innovation Hub or Regulatory Colony?

El Salvador, under President Bukele, has boldly embraced Bitcoin, aiming to become a global digital asset hub. Constructing a “Bitcoin City” may seem fanciful to some, but it is a vivid articulation of an alternative future—that of financial independence. Now, the SEC, an agency that is hardly considered a paragon of crypto-friendliness, wants to “cooperate” and align their regulations across jurisdictions. Frankly, it seems like opening the henhouse door for the fox.

The potential unintended consequences here are terribly troubling. The SEC, despite the inclusion of the sandbox concept, is still working within a framework built for the centralized, paternalistic world of traditional finance. Applying that overly broad framework to El Salvador’s crypto ecosystem would cripple innovation. It would turn what could be a hub of decentralized finance into a regulatory Caribbean island. Now, picture the SEC, with its enormous resources and enforcement powers, setting the terms of El Salvador’s development in the crypto space. This isn't collaboration; it's colonization by regulation.

Data Privacy Faces Existential Threat?

One of the prime tenets of cryptocurrency is privacy. It’s about people having ownership and control of their data, independent from the surveillance of both corporate interests and state actors. Yet when the SEC, an agency famous for their doggedness in data production and hunting, begins sniffing something out…

Will this increased “collaboration” result in degrading data privacy for Salvadoran citizens? Will the SEC require them to provide wallet address information, transaction data, and other private, sensitive information? Second, what protections and guarantees exist that this valuable data will only be used toward the intended goals of the sandbox? How do we know it won’t be abused? History shared by government agencies provides the worst examples of data protection, including the revelations from Edward Snowden. Continuing to hand control over the SEC would threaten to rob every individual of liberty we’ve seen nurtured in El Salvador. This isn’t simply a cause for Bitcoin supporters, this is a cause for the global future of financial freedom.

Whose Rules Really Matter Here?

The SEC's involvement raises questions about El Salvador's financial sovereignty. The announced purpose of the pilot program is to test El Salvador’s “streamlined” regulatory model against models in the U.S. What if the SEC's framework is fundamentally incompatible with El Salvador's vision? Are we rushing headlong into a world where El Salvador has to pass regulations that benefit the interests of the United States? This would be at the expense of its own priorities.

Consider this: the SEC’s historical stance on crypto has been, to put it mildly, cautious. As we’ve written, enforcement actions against crypto companies have been a dime a dozen. The punitive agency continues to pursue a strong enforcement approach on any and all securities registration and investor protection matters. And then, out of nowhere, they’d like to “partner” with a country that adopted it as legal tender. It’s like being told that a wolf wants to come and assist the sheep in constructing the fence.

Here's where the "Unexpected Connections" come in: Remember the early days of the internet? The U.S. used to be the champion of a decentralized, open, web. The more time that’s passed, the more large corporations and government agencies have looked to regulate and control it. Are we repeating that dynamic today with crypto? Is the SEC's visit to El Salvador the first step towards bringing the wild west of digital assets under the control of established powers?

“The road to hell is paved with good intentions,” or so the proverb goes. The SEC’s first-ever visit to El Salvador intended to foster collaboration, encourage innovation. We must be wary of the huge potential for unintended consequences. To paraphrase a great American, El Salvador should watch its step and protect its newly found financial sovereignty. Especially when the U.S. government extends an open invitation and says “don’t worry, we’re here to help,” it’s a good idea to read the fine print.

  • Is the SEC genuinely interested in collaboration, or is it seeking to exert control?
  • What are the potential risks to data privacy and financial sovereignty in El Salvador?
  • Could the SEC's involvement stifle innovation and limit financial freedom?

The stakes are high. The future of crypto – and financial freedom – might just depend on it.

The stakes are high. The future of crypto – and financial freedom – may depend on it.