The SEC is once again under the sway of the Trump flame. Just as alarming is its partnership with crypto companies linked to such ties to the former president. Regulatory reset, or stepping into the abyss? Industry insiders widely supported it as a significant course correction after what they considered an overreach by former SEC chair Gary Gensler. Is this too obvious a red flag? More concerningly, it signals that political patronage may soon poison the already swampy waters of crypto regulation. The answer to that, I worry, is what might prove to be the most sinister of combinations on both.
Is This a Crony Crypto Bailout?
Let's not mince words. The optics here are terrible. Ondo Finance, having gifted a cool million to Trump’s inauguration, then getting in bed with the SEC to talk about tokenized securities? The same Davis Polk that now represents Truth Social, which finds itself in these regulatory discussions. It has the odor of a backroom deal, crony capitalist’s dream come true. Wait, you say, everyone deserves a fair hearing. When massive political contributions are made in advance of that hearing, suddenly the scales of justice become rigged!
The withdrawn complaint against HEX founder Richard Heart is a cause for alarm. The possible favoritism in Ripple’s, Coinbase’s, and Kraken’s— all Trump-connected— favor deepens the waters to a much more swampy depth. Are we on the verge of seeing a practice where regulatory oversight is parceled out not based on adherence to the Federal laws, but based on political loyalty?
This isn’t only a matter of equity, it’s a matter of faith. Without a uniform approach, if the SEC is seen as playing favorites, investor confidence will nosedive. After all, who would be crazy enough to invest in a crypto project that lacked the necessary political connections to secure an endorsement? This system fuels a culture of fear, stifles innovation and development, and increases attrition. Only those who are skilled at playing the political game reap the rewards.
- Potential Winners: Firms with Trump connections
- Potential Losers: Retail investors, legitimate crypto projects
DeFi's Fate: Regulatory Freedom or Anarchy?
The elephant in the room is DeFi. Decentralized Finance presents exceptional benefits, particularly for permissionless innovation and for creating globalized markets. It has created tremendous challenges for regulators. A different, more permissive approach — one advocated by Trump’s allies — would allow DeFi to realize its full impact. We can’t wait to build that world with you—one where financial services are actually within reach for everyone, no matter what zip code they call home.
Yet this much-touted freedom would soon lead to chaos. Without strong regulatory guiding principles, DeFi devolves into a fertile ground for fraud. Rug pulls and other financial chicanery flourish within this unregulated wilderness. Remember the collapse of Terra/Luna? That was more than a crypto debacle. It was an alarm bell regarding the profound dangers of untrammeled DeFi.
The SEC’s openness to the concept of “regulatory sandboxes” may be a good sign, but the devil will be in the details. It’s something to ponder, since these sandboxes are described as real testing grounds for innovation. Or will they just turn into portals for politically connected firms to exploit. That answer will help decide if DeFi is a positive disruption or the market’s march into madness.
Investor Protection: Sacrificed at the Altar?
Investor protection. Gensler, for all his faults, at least pretended to care about it. If the SEC under Atkins swings too far in the other direction, we might just unlock the floodgates to fraud. This would result in more adverse manipulation across the market.
I'm reminded of the 2008 financial crisis. Deregulation was a huge handmaiden to that catastrophe. Those who promoted it were true believers in the “invisible hand” of the market. Have we learned nothing and are again condemned to repeat history, with crypto as the spark this time?
A better approach would be to lay out clear, sensible regulations that strongly protect investors while not crushing innovation. It would mean concerted efforts to work with the crypto industry, not counterproductive adversarial posturing. And it would definitely not include warm and fuzzy conferences with politically connected companies.
The SEC's actions have far-reaching implications. Will the US continue to be a go-to destination for crypto innovation, or not? Or will it become a Wild West in which only the politically well-connected succeed? The answer to that question lies in whether the SEC is truly committed to prioritizing investor protection and market integrity over political expediency.
As investors try to make sense of regulatory uncertainty, expect to see higher levels of volatility in the crypto market. Second, continue to monitor enforcement actions (or lack of expected actions) from the SEC. And most importantly, do your own research. What you can do Don’t take someone’s word for it, and certainly don’t take the word of a politically motivated actor. The outcome for crypto—and your economic prosperity—could hinge on it.
Expect increased volatility in the crypto market as investors grapple with regulatory uncertainty. Keep a close eye on enforcement actions (or lack thereof) from the SEC. And most importantly, do your own research. Don't blindly trust anyone, especially not those with a political agenda. The future of crypto, and your financial well-being, may depend on it.
