SEC’s Crenshaw says agency playing ‘regulatory Jenga’ with crypto

The SEC’s approach to crypto market regulation under the Trump administration has drawn sharp criticism from Democratic Commissioner Caroline Crenshaw. In a May 19 speech at the SEC Speaks event, she described the agency’s actions as a “game of regulatory Jenga,” warning against the dismantling of established rules governing both crypto and the broader financial markets.

Crenshaw compared market stability to a Jenga tower, carefully constructed over years by the SEC’s regulations. She expressed concern that the removal of certain rules, coupled with a significant loss of staff, could lead to the collapse of this carefully balanced system. She highlighted the SEC’s use of staff guidance to effectively overturn rules without proper analysis or public comment, particularly concerning crypto. This, she argued, amounts to “regulation by non-enforcement,” where the agency’s statements on crypto issues subtly signal a lack of commitment to rigorous legal application.

Crenshaw also criticized the abandonment of enforcement actions, particularly within crypto markets. She emphasized her deep concern over this significant reduction in the SEC’s enforcement program. The commissioner pointed to the 2022 FTX collapse as a prime example of the potential consequences of a large-scale crypto crisis, noting that the calls for regulatory oversight have diminished despite the persistent risks. She stressed the importance of addressing these risks to prevent future crises as crypto becomes more intertwined with traditional finance.

In contrast, Republican commissioners offered a more positive assessment of the agency’s shift towards the crypto sector. SEC Chair Paul Atkins stated that crypto markets had been “languishing in SEC limbo” and that the agency should not hinder innovation within the sector. Commissioner Hester Peirce, head of the SEC’s Crypto Task Force, criticized the Biden administration’s approach, asserting that it deviates from sound regulatory practices and needs correction. She also argued that most existing crypto assets are not securities, even if initially offered as such. Commissioner Mark Uyeda echoed these sentiments, urging the SEC to avoid using “regulation by enforcement” as a tool for future policymaking. These differing perspectives highlight the deep divisions within the SEC regarding its regulatory approach to the rapidly evolving crypto landscape.