24. February 2024

• The SEC nearly doubled the size of its crypto-asset enforcement team in early 2022 and is likely to continue its enforcement-based regulation in 2023.
• SEC Chairman Gary Gensler believes that the “vast majority” of crypto assets are securities and that only a few may not be securities.
• The SEC classifies many crypto assets as “investment contracts” and is reportedly investigating non-fungible tokens.

The Securities and Exchange Commission (SEC) has been regulating crypto assets since the introduction of Bitcoin by Satoshi more than a decade ago. After a year of significant developments in the world of crypto, many are wondering what the SEC and Commodity Futures Trading Commission (CFTC) will bring in 2023.

One notable change is the expansion of the SEC’s crypto-asset enforcement team, which has nearly doubled in size since early 2022. This suggests that the SEC will continue to regulate crypto assets by enforcement in 2023.

SEC Chairman Gary Gensler has expressed the belief that the “vast majority” of crypto assets are securities and that only a few may not be securities. To this end, the SEC classifies many crypto assets as “investment contracts”. This is in accordance with the U.S. Supreme Court’s definition of an investment contract in SEC v. W.J. Howey & Co., wherein an investor invests money into a common enterprise with a reasonable expectation of profits derived from the entrepreneurial or managerial efforts of others.

In addition to this, the SEC is reportedly investigating non-fungible tokens. Gensler has commented that he may “think CryptoKitties is not a security”, and yet the SEC’s investigation into these tokens shows that it is still taking a cautious approach when it comes to crypto assets.

The SEC’s approach to crypto regulation is similar to the approach taken by Gensler when he was Chairman of the CFTC. When he was at the helm of the CFTC, Gensler disregarded industry opposition and leveraged the existing futures regulatory framework in order to implement new swap market regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2008.

It is clear that the SEC will remain a key player in the world of crypto in 2023. With its increasing enforcement team and its steady approach to crypto regulation, the SEC will likely continue to play an important role in protecting investors and maintaining the integrity of the crypto markets.