The collapse of 2022 brought intense regulatory scrutiny to the crypto industry. The U.S. Securities and Exchange Commission (SEC), under Chairman Gary Gensler, took the most aggressive enforcement stance in crypto history. Gensler, who had taught a cryptocurrency class at MIT before joining the SEC, held a strong view: most cryptocurrencies were unregistered securities and their issuers were violating federal securities laws.
The SEC’s theory rested on the Howey Test, a 1946 Supreme Court decision that defines what counts as an “investment contract” and therefore a security. Under Howey, an investment is a security if it involves (1) an investment of money (2) in a common enterprise (3) with an expectation of profit (4) derived from the efforts of others. Gensler argued that most cryptocurrency tokens met all four criteria — and therefore needed to be registered with the SEC before being sold to U.S. investors.
Throughout 2022 and 2023, the SEC filed lawsuit after lawsuit. Ripple was sued over XRP sales (and partially prevailed in court). Coinbase was sued for operating as an unregistered securities exchange. Binance was sued alongside its CEO. Kraken was sued over its staking service. Various ICO projects were sued for unregistered token sales. The legal fees for defendants totaled hundreds of millions of dollars.
The crypto industry fought back. Coinbase launched a campaign called “Stand With Crypto,” mobilizing users to contact Congress. Industry groups argued that the SEC was regulating by enforcement — using lawsuits to create new rules rather than issuing clear guidance. They pointed out that the SEC had refused to write specific crypto rules even as it aggressively enforced vague interpretations of old laws. Some of the lawsuits resulted in mixed court outcomes, with judges sometimes siding with crypto defendants on specific issues.
The Biden administration’s crypto policy was generally hostile. “Operation Choke Point 2.0” was a term crypto advocates used to describe what they saw as an effort to cut crypto companies off from banking services. Banks that had served crypto clients, like Silvergate and Signature, collapsed in March 2023 amid regulatory pressure. Things improved somewhat after the 2024 election, when Donald Trump returned to the presidency promising a more crypto-friendly regulatory stance. Gary Gensler resigned. The SEC dropped some of its lawsuits. But the regulatory uncertainty of the 2022-2024 period had lasting effects, pushing much crypto innovation offshore and forcing U.S. companies to make difficult choices about where to operate.
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