Regulators have been trying to figure out how to oversee crypto trading for as long as the assets have existed, yet even after the collapse of several prominent firms, including FTX, no clear framework exists.
But two recent lawsuits against prominent crypto institutions could finally prove the tipping point, according to Dan Morehead, founder and managing partner of the crypto hedge fund Pantera Capital.
The SEC filed a lawsuit against Binance on Monday, accusing the company of offering unregistered securities to consumers. The next day, the agency sued Coinbase over similar allegations. While crypto advocates are saying that the lawsuits are just the most recent regulatory pushback against the sector, the two cases, somewhat counterintuitively, could lead to an actual regulatory plan for the erratic asset class.
"The recent cases against exchanges in our space, for better or worse, I think they will bring clarity—and that is great because blockchain is here to stay," Morehead said Thursday at Bloomberg's Invest Summit in New York City. "Regulatory clarity is the one thing nobody is expecting, and there are a few ways that could happen."
When asked about that path forward, Morehead pointed to the "borderless" nature of cryptocurrency. "Blockchain is global...and so regulators do need to think about it in a global context," he said. "The thing to remember is, most countries are pretty neutral on blockchain."
Morehead and Jay Clayton, a former SEC chairman, warned that the U.S.'s aggressive push to stifle crypto is pushing trading, and therefore innovation, overseas.
"The U.S. actually has a real national security interest and having blockchain happen," Morehead continued. "Last year, 95% of all trading of crypto assets was offshore. There's definitely some bad actors...but most people are using crypto for very legitimate, important reasons, and it's better to have it happen in the U.S."
Clayton was asked what he would be doing differently than the current chair, Gary Gensler. He declined to comment directly, but he did clarify that good tech and bad actors do coexist.
"Crypto is really a technology," he said, "and the use of blockchain technology in all sorts of aspects of our financial system should be not controversial. The allegations in the case of FTX and Binance, it's reprehensible behavior. Nobody wants it in in our financial system. But it's not on the blockchain."
