Following the appointment of a Cryptographic Tsar of the United States and the announcement of comprehensive cryptographic legislation, many believe that the era of “application regulation” in the United States has ended. But while the SEC and the CFTC now have cryptographic presidents, both state regulators and general prosecutors are ready to take their place as aggressive cryptographic agents.
For years, the aggressive approach of “application regulation” of the SEC suffocated the growth of the cryptographic industry and caused many to ask for a comprehensive regulatory framework that ended the “war on cryptography” once and for all. For this reason, many in the industry joined to provide support to the pro-Crypto candidates.
That strategy was fruit. Donald Trump was elected as the first president to promote his support for the cryptographic industry, despite his somewhat antagonistic position towards cryptography during his previous mandate. Since he assumed the position, Trump appointed David Sacks as the first “cripto tsar” of the nation, established a working group of the president in digital asset markets and appointed intermediate presidents of the SEC and CFTC who have already been expressing their support for the cryptographic industry.
But these federal changes do not end the aggressive application actions of state regulators who face public pressure to take measures to reign in cryptography. Many in the industry have already faced an aggressive application of regulators such as the New York Financial Services Department (NYDFS), which recently obtained a $ 37 million agreement of a cryptographic loan platform. Regulators such as Nydfs were aggressive even when the SEC participated in aggressive tactics against cryptography, so when the SEC scale its efforts, they can expect them to fill the void.
Other states are following New York leadership. At the end of 2023, California promulgated the Digital Financial Assets Law, which trained its Department of Financial Protection and Innovation to license and regulate digital assets. And the Illinois Legislature recently began to consider a new bill called Digital Protection Law and Consumer Protection that would train the State to regulate any company involved in the “commercial activity of digital assets” with a Illinois resident.
State General Prosecutors
It is possible that the new federal legislation can limit the ability of state regulators to bring their own matters of application. On February 4, the presidents of the Chamber Committee and the Senate expressed their confidence in the approval of comprehensive legislation that would create a regulatory framework for cryptography in the next 100 days. Because the Federal Law is ahead of state law, the new legislation could control some state regulatory activity.
But even if state regulators are locked by a new legislation, that legislation would not limit the capacity of state general prosecutors to submit demands that allege fraud for cryptographic related companies. The state AGs brought these demands when the crusade of “application regulation” of the SEC was in full swing. In 2023, New York Attorney General, Letitia James, filed a lawsuit claiming that a cryptography trade platform was falsely represented as an exchange. Later that year, the platform was resolved for $ 22 million and agreed not to do business with New Yorkers in the future.
Undoubtedly, a national regulatory framework and have Pro-Crypto regulators in Washington will provide more certainty and predictability for the cryptographic industry. But anyone who believes that “application regulation” is coming to an end is naive. You can still expect aggressive demands and regulator activity in the coming years. The place can pass from the SEC to the United States, but the impact on cryptographic companies and their customers will remain.
