Crypto Market Shakeup: SEC Closes in

In today’s Money Morning, the SEC has drawn a new line in the sand for Ethereum regulation. Authorities are outlining their new plan of attack to destabilise cryptocurrencies. Yet, CBDCs won’t suffice as a proper alternative to decentralised projects. But all these issues could pave the way for the innovation that is needed most…

Dear Reader,

The SEC (US Securities and Exchange Commission) is finally showing its true intentions…

In the wake of Ethereum [ETH]’s new update — The Merge — it seems the financial regulator is not happy. The authorities are now trying to not only regulate Ethereum but also claim control over it.

Here are just some of the comments from a federal lawsuit launched by the SEC on Monday:

At that point, their ETH contributions were validated by a network of nodes on the Ethereum blockchain, which are clustered more densely in the United States than in any other country. As a result, those transactions took place in the United States.

What the SEC is trying to argue here is that because most of the ETH trading in the case in question occurred in the US, it was, therefore, under their jurisdiction. In other words, because the ETH was bought and sold on US soil, the SEC thinks they should have the right to police it.

This is a dangerous precedent to set.

It proves that not only is the regulator actively watching Ethereum, but it is still hell-bent on trying to classify it as a security. Because with this designation, the SEC could finally get their grubby hands on arguably the most important crypto platform.

If that happens, then the decentralised dream will almost certainly be in jeopardy.

Tools of control

What’s worrying is that this power grab from authorities isn’t just an American problem either.

At home in Australia, we also have our own issues to contend with. For example, Liberal senator Andrew Bragg has openly called for crypto regulation here as well.

Rather than arguing over whether specific coins or tokens are securities, though, Bragg is simply using China as his tool for fearmongering. In his own words:

The Chinese government is piloting what they call the digital yuan, which is a digital form of currency, and they’re currently trialling that outside of China as well, with the UAE [United Arab Emirates], Hong Kong and Thailand.

That currency, if it became widespread in the Pacific, or even within Australia, would give the Chinese state enormous power, economic and strategic power that it doesn’t have today.

To his credit, Bragg is absolutely right about the digital yuan. It is a threat that we can’t afford to ignore.

But that doesn’t mean you should hamper the alternatives, like legitimate decentralised projects. Nor does it mean we should fight fire with fire via our own RBA-backed Central Bank Digital Currency (CBDC).

After all, replacing one centralised digital currency with another is not what we need. That is just handing power from one authority to another.

If you want to appreciate just how bad this kind of outcome could be, you need only check out our latest video. You can learn everything there is to know about the threat of CBDCs right here.

Forced innovation

Now, where all this will leave the crypto markets is a mystery.

Until we know exactly how far the regulators plan to go with their meddling, it is impossible to tell what may happen to Bitcoin [BTC], Ethereum, and any number of crypto projects.

However, I do know that you can’t put the blockchain genie back in the bottle.

Like it or not, cryptocurrency is not going to go away. Even if they regulate and stifle this generation of projects, there will be another wave of innovation — one that could refocus on the importance of decentralisation that is being highlighted right now…

As CoinDesk columnist David Morris notes on this looming regulation:

It could return cryptocurrency to its roots. The fat days of loose oversight removed incentives to build truly robust systems that could operate beyond government reach in favor of fragile systems with superficial features that could be shilled to retail traders and investors.

Features like censorship resistance and true decentralization are about to get a lot more important, and in the long run, that could be the best outcome of all.

This fact is why crypto investors know they have the upper hand. Because no matter how obstructive the authorities may be, they can’t truly ever get rid of the blockchain.

All you need to do is look at China for proof of that, like this headline from the SCMP last week:

Bans, regulation, and fearmongering will never work if someone somewhere still cares about decentralised money. Because as the old saying goes, necessity is the mother of invention.

And right now, we need decentralised innovation more than ever.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.

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