why it is crucial for crypto

While the SEC states its mission is to protect investors, there are questions about its methods and motives. This piece unravels the SEC’s structure, balance sheet, and notable interactions with cryptocurrency entities, providing an insightful and comprehensive look at a complex issue.

Hailed as a beacon of free market principles, the cryptocurrency market is going through an intriguing phase. It’s an era where the invisible hand of the market meets the tangible fist of regulation. 

The US Securities and Exchange Commission (SEC) sits at the eye of this storm. The regulator finds itself walking a tightrope – protecting the interests of investors while navigating the rapidly evolving crypto landscape. 

The irony, however, lies in its self-serving approach to defining securities and enforcing fines. Is the SEC protecting investors or padding its balance sheet? Let’s dive deeper.

SEC’s hunger for enforcement

Before we go further, let’s decrypt the organization of the SEC. The regulator operates under a committee led by the chairman, currently led by Gary Gensler, and four members, directing the operations of several departments, offices, and sub-regional offices. 

At the heart of this bureaucratic behemoth are the Enforcement and Examination departments, a duo that seems to dominate all others in importance.

Take a look at SEC’s funding, and you’ll see a spicy cocktail of the financial budget, transaction, and application fees, and here’s the cherry on top – confiscated income. 

It’s fascinating that if there are no victims to compensate, this forfeited income fuels the investor protection fund, the whistleblowers, and SEC’s investigative apparatus. If that doesn’t pique your curiosity, you must be a bot!

SEC’s balance beam act

From a financial standpoint, the SEC is rather thriving. According to its annual report, for the 2022 fiscal year, the total assets of the SEC surged from $12.2 billion to $14.1 billion, an uptick of a cool $1.9 billion. 

Most of these assets were composed of confiscated income. Now you’re seeing why enforcement actions are so crucial, aren’t you?

In a brilliant stroke of financial ingenuity or frightening reality, the confiscated income has become a “pillar income” for the SEC. 

Is it any wonder then that the net expenditure of the Enforcement and Inspection divisions is the highest, tallying to $1.75 billion, or 65% of the total spending? 

More importantly, these expenditures translated into a 9% increase in enforcement actions from the previous year. After all, who wouldn’t love a good old enforcement action to inflate the balance sheet?

Rewards and enforcement: more than just a coincidence?

The spoils of these enforcement actions have not gone unnoticed. In the 2022 fiscal year alone, the SEC dispensed a whopping $229 million as rewards among 103 whistleblowers. For an organization keen to ramp up its headcount from 4,685 to 5,139, these figures reveal its strategic priorities.

One of the case studies from this ‘enforcement bonanza’ involves Coinbase, the crypto trading behemoth. In a quirk of fate, the regulator alleges that Coinbase was operating unlawfully while trading in registered securities despite having an SEC-approved IPO. 

This could be a genuine attempt to protect investors or another enforcement maneuver to boost SEC’s revenue.

SEC and the crypto paradox: a look into the Coinbase case

Meanwhile, a new chapter in the history of cryptocurrencies unfolded in March 2023 when the US government, under the supervision of the SEC, used Coinbase to sell a significant amount of bitcoin (BTC).