SEC Commissioner Crenshaw Criticizes "Inconsistent" Characterization of Crypto
Commentary by Steven Lofchie
SEC Commissioner Caroline A. Crenshaw criticized recent Commission statements on the classification of crypto assets.
In a public statement, Commissioner Crenshaw raised concerns about the Commission’s inconsistency in treating certain crypto assets—specifically ETH and SOL—as "securities." She pointed out that in recent actions, the SEC allowed exchange-traded products to treat these assets as not being securities and, at the same time, allowed an issuer to register as an investment company on the basis of holding these assets (which assumes that they are securities).
This inconsistency, she argued, reveals that the Commission is not truly pursuing clarity, but is instead enabling "opportunistic—and deeply inconsistent—legal interpretations." She warned that by failing to apply a coherent regulatory framework, the SEC is rewarding aggressive market behavior, disregarding staff concerns, and drifting further into "muddy waters of our own making."
Commentary
Commissioner Crenshaw rightly points out that the SEC has taken certain inconsistent positions with regard to the treatment of ETH and SOL as securities. It is fair to say, however, that no harm has been done by this inconsistency. If an issuer that holds ETH and SOL were to be improperly registered as an investment company, that issuer is taking on additional regulatory burdens, not gaining any unfair advantage nor hurting the public.
The underlying issue is that there is no simple way to devise a regulatory scheme applicable to crypto; it is a fundamentally weird product that cannot be easily analogized to other financial assets. It is unfortunate that over the past four years, the SEC completely failed to consider or propose a workable regulatory scheme. As a result, regulators and legislators are faced with a significant market and no tools readily available to oversee that market. While such tools are being developed (no easy task), there is a scramble that, in this case, results in some logical inconsistencies. If those inconsistencies are not damaging, however, so what?
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