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The US Securities and Exchange Commission’s approach to crypto regulation under Chair Gary Gensler is stifling innovation and pushing American digital asset companies away from developing in the US. Instead of fostering growth through clear, constructive rulemaking, the commission has relied on aggressive enforcement actions that creates uncertainty and drives jobs, investment and innovation overseas.
To restore confidence and keep the US competitive in this emerging sector, the SEC must abandon its “regulation by enforcement” approach in favor of a transparent rulemaking process informed by public input. This shift would allow the digital asset industry to thrive under clear guidelines, keeping American innovation at the forefront of global finance.
Even if there is a change in SEC leadership with the upcoming change in administration, the SEC must seriously consider how it approaches digital asset regulation.
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American digital asset firms have spent more than $400 million defending against SEC enforcement actions under Chair Gensler — a figure that should serve as a stand in for the considerable opportunity costs of delayed innovation, loss of jobs and diverted capital. Just recently, a major software company in the digital asset sector announced they would lay off dozens of workers, noting that its battles with the SEC were costing the company millions. The SEC’s strategy is anti-innovation and must stop.
The commission’s strategy reflects a fundamental misalignment between regulatory means and ends. Rather than pursuing rulemaking through notice and comment — the legally required pathway for establishing regulatory frameworks — the SEC has opted for “regulation by enforcement.” This approach effectively transforms enforcement proceedings into de facto policymaking, bypassing the Administrative Procedure Act’s requirements for public notice and comment, and eliminating any public voice in the process.
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The industry has repeatedly urged the commission to establish clear rules and has sought clarity through multiple meetings with the agency. Instead of productively engaging with industry stakeholders, the commission has stonewalled and followed-up with enforcement actions. The commission’s regulation by enforcement strategy is so egregious that other industry participants have proactively sued them to seek clarity. In Lejilex v. SEC, for instance, the company articulates that it cannot launch its non-custodial exchange due to a fear of SEC enforcement. In another case, Mann v. SEC, two artists describe their fear of SEC enforcement by creating NFTs of their art.
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The consequences are both predictable and measurable. According to HarrisX survey data, voters believe that the US has taken the wrong approach toward crypto and that the SEC has been too heavy-handed. Indeed, voters prefer clear rules and regulation over enforcement by a factor of two-to-one. And even more critical: Two-thirds of voters agree the SEC should wait for clearer guidelines from Congress. More concerning is the effect on the American digital asset ecosystem: promising ventures that never materialized, investments never made and innovations redirected to more welcoming international jurisdictions.
The legal and business communities have long recognized that regulatory certainty creates economic value. When firms can accurately assess compliance requirements, they can allocate capital efficiently and innovate confidently. The current enforcement-first approach inverts this principle, creating a regulatory environment where even well-resourced legal departments struggle to provide definitive guidance to their clients. Investment increasingly flows to jurisdictions with clearer regulatory frameworks, while entrepreneurs choose to develop products in markets with more predictable oversight.
America’s position as a global financial leader relies on its ability to balance innovation and regulation effectively. The current enforcement-centric approach risks ceding leadership in an emerging technology sector to other jurisdictions — a mistake that could take decades to correct, if it is even possible. If the US wants to remain a leader in technological development, the SEC must change course.
A policymaking process driven by stakeholder input is the only way forward. Regulation by enforcement is not how a vibrant, innovative economy should function — it wastes taxpayer money, harms investors, kills innovation and pushes capital out of the country. It is now time for transparent, thoughtful regulation before the US loses its competitive edge in the digital economy.