The approach to crypto regulatory enforcement by the United States Securities and Exchange Commission (SEC) stalled the advancement of Bitcoin (BTC) in the country, according to the CEO of Grayscale Investments.
In a letter published in The Wall Street Journal on Jan. 23, the chief of the cryptocurrency asset management firm, Michael Sonnenshein, said he agreed with an assertion that the SEC was “late to the game” regarding crypto regulation and preventing the bankruptcy of FTX, adding:
“‘Late’ doesn’t capture what transpired here. The problem is the Securities and Exchange Commission’s one-dimensional approach of regulation by enforcement.”
Grayscale is currently suiting the SEC for denying the conversion of its Bitcoin trust to a spot-based Exchange Traded Fund (ETF).
He clarified the SEC “should certainly try to eliminate bad actors” but it shouldn’t hinder “efforts to develop appropriate regulation.”
Doing our part to re-instill trust and confidence in #bitcoin and #crypto cc @Grayscale @CraigSalm @jenn_rosenthal $GBTC pic.twitter.com/u72RHmGTmJ
— Sonnenshein (@Sonnenshein) January 23, 2023
The inaction by the regulator to stop such bad actors from entering the crypto industry “prevented Bitcoin's advancement into the U.S. regulatory perimeter” according to Sonnenshein.
This has thus forced American investors to offshore crypto businesses “with less protection and oversight," he said.
“We are seeing the consequences of the SEC’s priorities play out in real-time — at the expense of U.S. investors.”
Sonnenshein’s opinion piece comes amid an ongoing lawsuit between Grayscale and the SEC for having “arbitrarily denied” Grayscale’s plans to convert its Grayscale Bitcoin Trust (GBTC) to a spot ETF.
The SEC argued Grayscale’s proposal did not sufficiently protect against fraud and manipulation. Grayscale countered saying the SEC was arbitrarily treating spot-traded products differently from futures-traded products.
Grayscale is owned by the crypto conglomerate Digital Currency Group (DCG), which is currently undergoing financial difficulties.
DCG also owns the bankrupt Genesis Trading which was charged by the SEC on Jan. 12 for allegedly selling unregistered securities.
Related: SEC leaked crypto miners’ personal information during investigation: Report
Over the weekend, John Reed Stark, a crypto skeptic and former SEC chief lambasted the term “regulation by enforcement” labeling it a “Bogus Big Crypto Catch Phrase.”
In a Jan. 22 post on Linkedin, he said the term was a “misguided, deflective effort designed to tap into sympathetic libertarian and anti-regulatory mores” calling it “utter nonsense.”
He argued that “litigation and SEC enforcement are actually how securities regulation works.”