The War on Crypto Isn't Ending. It's Just Changing Battlefields. — Barrons.com

By Howard Fischer

About the author: Howard Fischer is a partner at the New York law firm Moses Singer. He was previously a senior trial counsel at the SEC.

A golden era is about to dawn in the digital asset ecosystem. Freed from the shackles of the Securities and Exchange Commission's overly aggressive, enforcement-focused agenda, the crypto movement will bloom. Or so its most enthusiastic adherents, some placed within the federal government, believe.

It seems as if every week, the SEC's Division of Corporation Finance announces that another digital asset or activity — including meme coins, proof-of-work mining activities, stablecoins, or protocol staking — shouldn't be considered a security. Under President Donald Trump, himself a crypto-enthusiast, the SEC has also dropped multiple cases against digital asset firms such as Coinbase Global and Token Metrics.

But crypto fans may be counting their digital chickens before they hatch. The belief that "anything goes" in the world of digital assets under Trump's SEC is probably an overblown hope, for several reasons.

The federal court cases won by President Joe Biden's SEC chair, Gary Gensler, established that most digital assets are securities — assets subject not only to SEC supervision but also to the federal rules governing the sale and offering of securities, including registration and antifraud provision. Those findings still stand.

Granted, Gensler's SEC didn't win every case it brought, and there were inconsistent decisions regarding whether digital assets are only considered subject to the securities laws in their initial distribution, as opposed to secondary market transactions. But a key holding of almost every case, such as those against Telegram, LBRY, and Terraform, was that digital assets are securities — and thus subject to the oversight of the SEC.

The new SEC commissioner, Paul Atkins, recently tried to downplay those findings. In a speech before the America First Policy Institute, he said that the agency would work to advance Trump's intent to make the U.S. a global powerhouse in crypto. "Despite what the SEC has said in the past, " he said, "most crypto assets are not securities."

But absent explicit legislation providing that digital assets aren't securities, federal court decisions still have primacy over federal agency policy statements. The Supreme Court decided in the Loper Bright case last year that federal courts need not give deference to agency interpretations of statutes. So, although the SEC may no longer consider itself the cop on the beat when it comes to digital assets, the case law that was established while acting as such remains in effect.

Even if the SEC were to abandon its oversight of crypto assets, state attorneys general and state securities bureaus have said they would assume that duty. A few weeks after the SEC announced it was dropping its enforcement action against Coinbase for allegedly selling unregistered securities, Oregon Attorney General Dan Rayfield sued Coinbase, accusing it of selling Oregonians high-risk securities.

Coinbase claimed in a countersuit that the state didn't inform it that it would start actively regulating cryptocurrencies as securities. Rayfield's office said in its suit that "states must fill the federal vacuum being left by federal regulators who are giving up under the new administration."

New York state Attorney General Letitia James is also aggressively pursuing digital asset enterprises. In an April court decision, James successfully argued that certain digital asset transactions can qualify as securities under state law. State statutes and regulations often apply more broadly than federal law. So, even if federal law changes, state laws will fill the remaining gaps. Especially in today's highly politicized culture, state officials will seek to differentiate themselves from federal enforcers by taking an aggressive approach to digital assets. It doesn't appear as if state agencies — once content to let federal authorities set the agenda — will remain on the sidelines.

Third, the fact that the SEC is no longer going to take an enforcement-first approach toward digital assets doesn't mean that SEC lawyers — or at least former SEC lawyers — share that approach. I am a former SEC trial counsel. In talking with former colleagues over the past few months, I have learned something interesting.

Many senior-level lawyers, some with decades of experience in courtrooms, are taking a path not many before them have trod. Traditionally, former SEC lawyers go either to large New York or Washington law firms, or in-house to a legacy bank or hedge fund (or, in my case, to a top-tier, midsize law firm). Now, for the first time in recent memory, many of my former SEC colleagues, including those from its now-disbanded crypto unit, are going to the plaintiff's bar.

These are battle-hardened veterans of the courtroom who are experts in the application of securities laws to the digital asset space. They aren't retiring from the battle — just joining a different army. I'm sure others will join them over the next few months.

As a result, digital asset enterprises are still at risk of litigation, from both state agencies and private law firms. This presents significant uncertainties, not to mention the possibility of additional costs for their projects.

Those declaring victory prematurely should be aware that the war isn't ending. It's just moving to different battlefields.

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