Crypto Fear and Loathing in the US Government

Joe Lubin, Ethereum co-founder and head of Consensys, has criticized the U.S. Securities and Exchange Commission (SEC) for its recent enforcement actions against cryptocurrency firms, suggesting these moves are designed to sow “fear, uncertainty, and doubt” within the industry. Lubin, whose company was recently issued a Wells Notice by the SEC, views this as an effort to either incapacitate the firm or push it offshore. He noted that the SEC has seemingly reclassified Ethereum as a security without proper notification, prompting Consensys to seek clarity from U.S. courts through a preemptive lawsuit to affirm Ethereum’s status as a commodity.

In the past year, the SEC has targeted various crypto firms including Coinbase and Binance with enforcement actions and has issued Wells Notices to others, including Consensys. Lubin criticized the SEC’s stance that crypto wallets like MetaMask should register as broker dealers, a notion he dismisses as absurd. He also highlighted the SEC’s unusual claim that Consensys is aiding in the issuance of securities through its support of certain decentralized finance protocols on Ethereum.

Lubin expressed concern over the SEC’s examination of software developers’ GitHubs, describing this scrutiny as a chilling effect on those developing the protocol’s infrastructure. He also speculated that the timing of the SEC’s aggressive stance might be strategically placed ahead of the May 23 deadline to approve or deny U.S. spot Ethereum ETF applications, suggesting it is an effort by the SEC to justify a likely denial as not being arbitrary.

The Ethereum co-founder argued that the SEC might be resistant to innovations that could shift traditional banking customers towards digital assets and decentralized finance (DeFi) applications. Despite these challenges, Lubin remains hopeful about the eventual approval of spot Ethereum ETFs, foreseeing a significant shift by 2025 when he anticipates court interventions may compel SEC approval.

In related developments, the U.S. House of Representatives has passed a resolution to reject the SEC’s cryptocurrency accounting guidance, known as SAB 121, which has been heavily criticized by the digital asset community and some lawmakers for dissuading banks from engaging with crypto assets due to the onerous requirements it imposes. Despite this legislative move, President Joe Biden has indicated he would veto the resolution. Critics, including Rep. Mike Flood (R-Neb.), accuse SEC Chair Gary Gensler of using the guidance to unjustifiably extend his reach into the banking sector and stifle the integration of digital assets into mainstream financial services.