In the aftermath of a recent U.S. crypto czar appointment and proposed comprehensive crypto laws, many speculate that the intense era of “regulation by enforcement” is ending. However, even with crypto-friendly leadership at the SEC and CFTC, state regulators and Attorneys General are poised to maintain their enforcement roles.
The SEC’s prior stringent enforcement timing stifled crypto industry’s growth, prompting calls for a comprehensive regulatory framework aiming to conclude the ongoing “war on crypto.” This collective push supported pro-crypto candidates, ultimately leading to former President Trump pledging support for the crypto sector.
Under Trump, David Sacks was appointed as the nation’s first “Crypto Czar,” along with a formal President’s Working Group on Digital Asset Markets, and supportive interim chairs at the SEC and CFTC.
Nevertheless, state regulators are under public pressure to continue enforcing measures against crypto. For instance, the New York Department of Financial Services has been notably active, recently achieving a $37 million settlement from a crypto lending firm.
California has taken a step further by implementing the Digital Financial Assets Law, which enhances its regulatory capacity over digital assets. Illinois is also working on the Digital Assets and Consumer Protection Act to tighten its grip over companies involved in digital asset activities.
State Attorneys General
Emerging federal regulations may restrict state regulators’ enforcement authority. On February 4, legislative chairs expressed optimism about passing a comprehensive regulatory bill within 100 days. Such federal mandates could potentially limit the state regulatory bandwidth.
However, state Attorneys General remain empowered to pursue legal actions against alleged fraud by crypto entities. In 2023, New York AG Letitia James successfully filed a lawsuit against a crypto trading platform leading to a $22 million settlement, showcasing that aggressive legal actions will likely continue despite federal regulatory changes.
While a national regulatory framework will enhance certainty for the crypto industry, the belief that “regulation by enforcement” is coming to an end is somewhat naïve. Expect increased actions from state-level enforcement entities as the landscape evolves.
