The Securities and Exchange Commission filed lawsuits this week against Binance and Coinbase. This has set up a high stakes battle which will involve all three branches of U.S. Government in a power struggle, determine if the crypto industry leaves the U.S. permanently, and define future of digital currency.

SEC’s aggressive action against Binance and Coinbase – the two largest crypto exchanges in the U.S. – is a big flex that shows the agency’s extraordinary discretionary powers. Gary Gensler, the SEC chairman, said in interviews that “we don’t want more digital currency.” This suggests he really wants to destroy the crypto market.

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The SEC wanted to show that its reach extended beyond U.S. border by suing Binance and its highly-publicized CEO, Changpeng Zhao (CZ), with . Among other allegations, alleges that Binance offered unregistered security and mixed customer funds.

The Coinbase Case is clearly aimed at a wider group of players. The case is based on the idea that many of the securities traded at the San Francisco exchange are not registered securities. This creates legal concerns for Algorand and Polygon. The actions are directly directed at the centralized financial (CeFi), system that Binance and Coinbase rely on to run their custodial model, and indirectly some of the key protocols upon which decentralized financing (DeFi) is based.

The SEC is not going to win this case. The SEC case against RippleLabs, which has been ongoing for three years, is a good example. Binance and Coinbase both promise to fight in court. This will put a huge burden on the Commission’s already stretched enforcement team.

The SEC’s hardline approach does not have widespread support from other parts of the U.S. Government. It’s almost as if the SEC is begging other agencies to take action against it.

Other ideas, other branches of government

Let’s start with Congress.

The draft bill, which will be soon before the House, sets out the parameters of how digital assets should be classified and limits the SEC’s interpretation powers in crypto under existing securities laws. This reduces its ability to take these types of enforcement action. The bill is sponsored by Rep. Patrick McHenry, the chairman of the House Financial Services Committee, who has criticized Gensler for his aggressive actions against crypto, and Rep. Glenn Thompson, the chairperson of the Agriculture committee, which oversees the Commodity Futures Trading Commission, the other major agency vying to have a say in crypto regulation.

The McHenry Thompson bill is unlikely to pass the Democrat controlled Senate in the current election term. However, the proposed legislation will be a major talking point during the upcoming campaign season.

This brings us to the second branch of the government, the executive. The SEC and similar agencies are under the authority of the executive. These lawsuits are likely to be used in a presidential election campaign, where the future of digital assets and crypto will be debated more than ever before.

Three Presidential candidates have already expressed their support for crypto: Robert F. Kennedy Jr. who is challenging Biden to win the Democratic nomination, Florida governor Ron De Santis seen as a main contender for former President Donald Trump and third-round candidate, and biotech entrepreneur Vivek RAMaswamy another Republican contender. Trump has used non-fungible crypto tokens to raise money. However, his statements on the subject have been inconsistent. His indictment for federal charges on Thursday evening raises serious questions about his candidacy.

Read more: David Z. Morris, The SEC is Fighting the Last War

This level of attention to the industry, regardless of whether Biden is re-elected as president, will shape the political climate of the future SEC’s handling of these cases.

Last month, the Supreme Court weakened the Environmental Protection Agency’s ability to enforce Clean Water Act rules against landowners. What has this got to do with crypto and the SEC? The conservatives who control the Supreme Court see the EPA’s authority as the first agency that needs to be curtailed. The SEC will likely be the target of a more comprehensive attack on executive agencies.

A perfect storm of political forces is gathering, making it difficult to predict the outcome of the current crypto war.

What’s next?

Even if it takes years for us to see the outcome, this multi-fronted nature of this battle also increases its stakes.

If Gensler’s strategy of an all-out assault wins, crypto could de facto die in the U.S. Developers are leaving in droves to open up in Dubai, Bermuda, Singapore, France or any other jurisdiction that is actively developing regulatory safeguards to allow crypto innovation.

It’s not that certain stablecoin ideas, or strategies for real-world assets tokenization led by existing institutions or public companies will be prohibited or discouraged in the U.S. Since these ideas would have a hard time integrating with the permissionless blockchain architecture of the banned “crypto”, an outdated U.S. Capital Market might struggle to compete against the new models for programmable currency and decentralized governance that are being fostered elsewhere.


This is not a simple case for the SEC

The passage of time, and the increasing counteroffensive by crypto supporters in Congress and at the courts, could stop this wave of attacks. What is the end goal? But to what end?

For our own peace of mind, the crypto-topic must transcend politics. This would be great if it happened organically, because after all, crypto is a technology and should not be politicized. Unfortunately, the crypto community will have to do it. Education efforts should focus on real-world use cases that demonstrate the human benefits of this industry’s decentralized data sharing and value exchange.

We need to try to ignore Washington’s political theater, not because we want to stop engaging in the process but rather to find a way to appeal to both sides.

Part of this is focusing on a positive story. In an era of uncertainty about climate change, geopolitical tensions, and the intrusion of artificial intelligence in society, such a narrative would be appealing to both political parties.

Ben Schiller is the editor.