(Bloomberg) -- The cryptocurrency industry is hoping the upcoming US presidential election will put someone in the White House who has a softer approach on enforcement, thereby ending prolonged battles with Wall Street’s top cop.
Former President Donald Trump has lately cozied up to the $2.5 trillion crypto industry, even inviting supporters to a Bitcoin-focused fundraiser on July 27. Although the Republican nominee criticized cryptocurrencies while in office, his recent comments have been more favorable — and lawyers expect that, if he wins, the US Securities and Exchange Commission will stop pursuing the digital-asset space so aggressively.
“A Trump administration would likely seek to reset and rethink the SEC’s crypto regulatory policy,” said Michael Selig, partner at Willkie Farr & Gallagher LLP. “Such a reset would naturally involve resolving ongoing enforcement actions and investigations brought by the prior administration.”
Under President Joe Biden, the SEC has ramped up its pursuit of the industry, especially after the collapse of crypto exchange FTX in 2022. The regulator has brought dozens of enforcement cases, often accusing exchanges and broker-dealers of not properly registering under securities law.
SEC Chair Gary Gensler maintains that most cryptocurrencies are securities and should therefore register with the agency. Many crypto companies either argue that their tokens are not securities or say the registration requirements are unclear.
The SEC has settled some matters, but litigation involving firms including Kraken, Coinbase and Binance are still tied up in court. The SEC has also closed some of its investigations including one into Ethereum and another regarding BUSD, a Binance-branded cryptocurrency issued by New York-headquartered Paxos.
The varied outcomes have left open the question of whether tokens are, or are not, securities. The SEC’s lawsuit against Ripple Labs Inc. and its executives could help put the matter to rest.
The SEC alleged that Ripple conducted an unregistered securities offering through the sale of XRP tokens, raising over $1.3 billion. In what many saw as a setback for the SEC, a federal judge ruled last July that sales of XRP to retail investors on exchanges did not amount to investment contracts.
Ripple Chief Executive Officer Brad Garlinghouse predicted a resolution “very soon” in an interview with Bloomberg Television on Wednesday.
The SEC filed that lawsuit in 2020 while Trump was still in office, and he has not offered specific details about his views on crypto regulation. But several lawyers and executives within the industry said they expect less enforcement activity if he gets elected again.
“Remember, if Trump gets elected, the Republicans can immediately change who the chair is,” said Austin Campbell, a blockchain consultant and adjunct professor at Columbia Business School. “What this means in practical terms is that many of these cases — which have been shotgunned out at highly variable degrees of quality and generating highly variable decisions that are increasing confusion — could all be settled instead of having to go forward.”
Of course, it is not certain that Trump will win the election, or what his actual policy stance will be. He has been leading in recent polls amid speculation that Biden may step aside to let another Democrat replace him on the ballot. Whether that will happen, who it would be or how a different candidate would fare against Trump is unclear.
And, some experts do not predict the SEC will drop or settle ongoing litigation, even if Trump were to win.
Securities enforcement cases are typically “apolitical” and there’s little staff turnover resulting from political changes, said Emily Meyers, general counsel at venture capital firm Electric Capital.
“It’s unlikely that any ongoing cases get dropped, especially those that are already being argued in federal court,” Meyers said. “It’s more likely that a new administration, or even a second Biden administration, brings fewer or different types of new crypto enforcement cases.”
Ji Kim, chief legal and policy officer at lobbying group Crypto Council for Innovation, took a similar view.
“If President Trump were reelected and chair Gensler steps down, we could see the current regulation-by-enforcement norm change,” he said. “However, that would depend on the leadership and the make-up of the commissioners — nothing is guaranteed.”
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