U.S. Securities and Exchange Commission (SEC): Why does this agency set the rules for the cryptocurrency market?

Every trader in the cryptocurrency market encounters news about SEC decisions one way or another, but not everyone understands why this American agency exerts such a decisive influence on the global digital asset industry. Although the U.S. Securities and Exchange Commission (SEC) has jurisdiction only within the United States, its actions literally shake the entire cryptocurrency market. Let’s understand how this system is structured and why SEC decisions become signals for the whole planet.

History of Formation and Main Powers

The SEC was established in 1934, immediately after the 1929 financial crash and the Great Depression. Since its creation, this federal agency has been responsible for ensuring compliance with American securities laws. Its main task is to protect investors’ interests by establishing clear rules of the game and strict oversight of their enforcement.

Currently, the SEC is headed by Chair Gary Gensler, whose stance on cryptocurrencies is quite strict and often becomes a subject of intense debate within the industry. Gensler believes that most digital assets should be considered securities and be under the strict supervision of the commission.

Internal Organization: Structure and Division of Responsibilities

The functional architecture of the SEC consists of five main divisions, each responsible for its own regulatory sphere:

• Investment Management oversees the activities of investment funds and advisors, ensuring their operations comply with established standards.

• Corporate Finance supervises disclosure by issuers and reviews financial reports.

• Market Trading monitors the fairness of trading processes and prevents market manipulations.

• Enforcement Division conducts investigations of violations and holds offenders accountable.

• Analytical Center studies new trends, risks, and innovations to adapt regulation to changing conditions.

SEC Mission: From Traditional Stocks to Cryptocurrencies

Initially, SEC’s influence was limited to the traditional stock and bond markets. However, with the explosive growth of the cryptocurrency industry, the commission began actively expanding its control over the decentralized finance (DeFi) sector. This happened because the U.S. remains the world’s largest financial center, and any decision by American regulators automatically impacts global markets.

The main objectives pursued by the SEC include:

• Ensuring compliance with federal financial laws
• Protecting investors from fraud and manipulation
• Maintaining transparency in the issuance and trading of securities
• Monitoring market conditions and adapting regulatory frameworks
• Approving new securities and bond issuances
• Controlling information provided by companies to shareholders
• Supervising corporate deals and mergers
• Overseeing self-regulatory organizations

Practical Impact: High-Profile Lawsuits and Their Consequences

SEC’s stance on cryptocurrencies has significantly hardened under Gensler’s leadership. The commission considers many digital tokens to be de facto securities, even if their issuers do not recognize them as such. Gensler only recognizes Bitcoin as a commodity, not a security, and demands strict registration for all other assets.

This has led to a series of high-profile cases:

The lawsuit against Binance shocked the entire crypto industry. The SEC accused this leading exchange of trading unregistered securities and violating investor protection laws.

Legal proceedings with Coinbase include allegations that the platform earned billions trading tokens that should have been registered as securities. The SEC claims Coinbase operated as an unregistered exchange and broker-dealer.

The lawsuit against Ripple was filed in late 2020. The SEC alleged that the company raised over $1.2 billion through the sale of XRP, which the commission considered unregistered securities.

Actions against PAXOS led to a warning regarding the stablecoin BUSD. The agency declared BUSD an unregistered security, causing a sharp drop in its price and taking several days to recover.

Regulation of Stablecoins and Decentralized Finance

In addition, the SEC is expanding its focus to the stablecoin market, including popular USDT and USDC. The commission requires stablecoin issuers to disclose information about their reserves and meet strict financial reporting standards. Meanwhile, the agency is studying decentralized finance (DeFi) platforms and trying to apply traditional regulation to them, though this faces significant resistance due to the decentralized nature of these services.

Global Influence of the American Regulator

Although the SEC technically regulates only the U.S. market, practically all cryptocurrency exchanges, regardless of their country of registration, must consider its decisions. This is because many major platforms seek access to American users, who represent a significant portion of the global market. Therefore, any sharp SEC decision can trigger a wave of sell-offs across all platforms worldwide.

Final Thoughts

Understanding the role and influence of the SEC is crucial for all participants in the cryptocurrency market. This regulatory body acts as the main arbiter of which digital assets are considered securities and which remain outside its regulation. SEC decisions shape the strategies of major crypto exchanges, influence token prices, and form the overall attitude of investors toward the industry. While the crypto community often criticizes Gensler’s approach as too conservative, the SEC continues to be the most influential force in regulating the digital asset market on a global level.