The U.S. Securities and Exchange Commission (SEC) is facing internal tension as its only Democratic commissioner, Caroline Crenshaw, voiced strong concerns about the agency’s shifting stance on cryptocurrency regulation. In remarks delivered on May 19 during the annual SEC Speaks event, Crenshaw painted a vivid picture of the current regulatory environment, describing it as a precarious game of “regulatory Jenga.”
Her analogy? The SEC’s long-standing regulatory framework resembles a tower of carefully placed blocks—each rule playing a vital role in maintaining market stability. Begin removing key pieces without careful thought, and the entire structure could collapse.
A Sharp Critique of Crypto Policy Shifts
Crenshaw’s speech didn’t hold back. She accused the agency of effectively walking back its established rules through informal staff guidance, especially in matters related to cryptocurrency, without undergoing the usual public comment and policy review process. This, she argued, represents a dangerous move away from structured policymaking.
“Our statements on these crypto-related issues are the equivalent of a wink and nod,” Crenshaw said, suggesting that the agency is subtly signaling a lack of intent to enforce its own rules consistently in the crypto sector.
This approach, she warned, sets a precedent for “regulation by non-enforcement,” where inaction speaks louder than formal policy. She expressed deep unease with the SEC’s perceived retreat from pursuing key enforcement actions, particularly those involving crypto companies.
Undermining Trust and Precedent
Crenshaw also emphasized the broader consequences of the agency’s shift. According to her, this about-face risks damaging the SEC’s credibility—not just with the public and crypto industry, but also in court. It raises doubts about the integrity of longstanding case law, casting uncertainty over the entire legal foundation the agency has operated on for decades.
She pointed to the 2022 collapse of FTX as a clear warning. That meltdown demonstrated the potential scale and fallout of poorly regulated crypto platforms. While calls for stronger oversight surged in the aftermath, Crenshaw argued that those voices have since quieted—despite the ongoing risk.
“Crypto is now becoming increasingly intertwined with traditional finance,” she warned. “And ignoring those risks just sets us up to learn the same painful lessons all over again.”
A House Divided: Contrasting Views from Republican Commissioners
In stark contrast, Republican members of the SEC used the same forum to express enthusiasm for the agency’s more relaxed crypto posture. SEC Chair Paul Atkins acknowledged that crypto markets have been stuck in a kind of regulatory purgatory for years, and said it was time to give innovation room to breathe.
Commissioner Hester Peirce, who leads the SEC’s Crypto Task Force, offered perhaps the most sweeping critique of the agency’s prior crypto crackdown, saying that the approach under President Biden “evaded sound regulatory practice and must be corrected.”
Peirce further claimed that most digital assets currently in circulation do not qualify as securities, and therefore shouldn’t fall under the SEC’s jurisdiction. Even if they were originally issued through investment contracts, she argued, many now function as standalone utility tokens.
Commissioner Mark Uyeda added that “regulation by enforcement” should not be used as a substitute for clearly defined rules, and stressed the need for greater regulatory transparency.
The Bigger Picture
This growing divide within the SEC underscores the broader challenge of regulating a fast-moving and complex crypto landscape. As the U.S. struggles to strike the right balance between innovation and investor protection, the agency’s internal disagreements may shape the future of crypto regulation just as much as its formal rulemaking.
Crenshaw’s warning stands out as a call for caution in an industry where risk and opportunity are tightly intertwined. Whether the SEC continues removing blocks from its regulatory Jenga tower—or reinforces it with updated, deliberate policies—remains to be seen.
