Rethinking US regulation: SEC's crypto strategy for 2025
The initiative seeks transparency and integrity in the evolving digital currency ecosystem
As cryptocurrencies continue to gain traction, the US Securities and Exchange Commission (SEC) is stepping up its efforts to regulate this volatile market.
Following a high-profile legal battle with Crypto.com—where the SEC served the exchange with a Wells Notice, indicating impending enforcement action—the agency has made crypto a focal point of its regulatory agenda for 2025.
In response, Crypto.com filed a lawsuit against the SEC, arguing that the regulatory body incorrectly classified most crypto trades, other than Bitcoin and Ether, as securities transactions. This legal clash highlights the urgent need for clarity in the evolving landscape of digital asset regulation.
Why is the SEC emphasizing crypto assets?
According to FOX Business journalist Eleanor Terrett, the SEC has outlined its plans to closely monitor the crypto industry in 2025. They will be keeping an eye on companies—referred to as registrants—that offer services related to digital assets like Bitcoin and Ethereum, especially when these assets are treated as securities.
🚨NEW: A year on, the @SECGov includes #crypto in its list of 2025 exam priorities despite no major crypto participants having registered with the Commission in 2024.
— Eleanor Terrett (@EleanorTerrett) October 22, 2024
The only crypto assets I can think of that the SEC has interacted with in a regulatory role, not an enforcement… https://t.co/ky6Mf7jvsJ pic.twitter.com/aoVvD9QrqF
The SEC will focus on how these companies are selling, trading, recommending, or advising consumers about cryptocurrencies. They want to ensure that when companies offer advice to investors, particularly everyday retail investors who may be using retirement funds, they adhere to the proper rules and regulations.
Moreover, the SEC plans to scrutinize how crypto companies manage critical aspects such as custody—the methods used to store and protect digital assets—and valuation, which involves determining the worth of these assets. Compliance with important laws, including the Bank Secrecy Act (BSA), will also be assessed to prevent illegal activities like money laundering.
Operational readiness and security concerns
Beyond these regulatory checks, the SEC is concerned about the operational readiness of crypto service providers, particularly regarding data security and business continuity plans. This focus is vital for both investor protection and the integrity of the broader financial system.
Keith Cassidy, the SEC’s Acting Director of the Division of Examinations, emphasized that these priorities for 2025 are designed to highlight areas where investors might face heightened risks in the crypto market. This reinforces the SEC's commitment to a robust regulatory framework for digital assets, even as the market continues to evolve.
Chair Gary Gensler has also noted that the SEC’s role is to help market participants navigate the rules, ensuring investor protection while promoting capital formation. Essentially, the agency seeks to create a balanced environment where the crypto sector can grow safely and sustainably.
The unpredictable nature of cryptocurrencies is a significant driver of the SEC's focus. With prices often experiencing extreme fluctuations, many investors face the risk of substantial financial losses.
The crypto market has become a hotbed for scams, from fraudulent token sales to Ponzi schemes that exploit unsuspecting investors.
Addressing market manipulation and fraud
The crypto market is also susceptible to manipulation, with larger players often able to inflate prices through tactics like pump-and-dump schemes. These schemes artificially boost a cryptocurrency's price through misleading statements, allowing larger players to sell at a profit, leaving smaller investors at a loss.
To lure fraudsters out of hiding, the FBI launched Operation Token Mirrors, using its own digital coin, NexFundAI, to address market manipulation. This operation successfully led to the recovery of $25 million in fraudulent profits, underscoring the pressing need for SEC intervention.
Clarifying regulatory standards
As many companies in the crypto space continue to grapple with how securities laws apply to their operations, the SEC plans to spend 2025 clarifying these regulations. This effort is essential to close potential loopholes that could expose investors to unnecessary risks.
Furthermore, with billions lost to cyberattacks targeting crypto platforms, the SEC is intent on ensuring that companies implement adequate security measures. This includes protecting digital wallets and preventing hacks on exchanges to safeguard users' funds and personal data.
The SEC's renewed focus on cryptocurrencies in 2025 demonstrates its determination to foster fairness in the crypto markets. By cracking down on manipulative practices, the agency aims to ensure that market prices reflect genuine value rather than artificial hype created by bad actors.
This enhanced oversight reflects the SEC's commitment to addressing the unique risks of this rapidly evolving industry, aiming to protect investors from fraud and ensure the crypto market develops under clearer and more transparent regulations.
