SuperEx丨The SEC has once again included cryptocurrencies in its list of review priorities for the coming year.

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In a notice dated October 21, the SEC outlined its priorities for 2025, emphasizing the review of crypto assets and their “related products and services.”

According to the regulatory body, its plan will focus on “offers, sales, recommendations, advice, trading, and other activities involving crypto assets,” specifically highlighting spot Bitcoin and Ethereum exchange-traded products.

Here are some statements from SEC officials:

The SEC stated: “Given the volatility and activity in the crypto asset market, this division will continue to monitor and, when appropriate, inspect registrants offering services related to crypto assets.” They added, “The division will evaluate registrants’ practices to address technical risks associated with blockchain and distributed ledger technology, including security risks related to crypto assets.”

Keith Cassidy, Acting Director of the SEC’s Division of Examination, mentioned that the priority list identifies “key areas that may increase risk and potentially harm investors.”

Chairman Gary Gensler noted that the division aims to help participants “understand the rules,” highlighting the necessity of protecting investors and promoting capital formation.

It is important to note that personnel changes and power shifts in the SEC’s leadership and government next year could cast uncertainty over these developments.

Industry experts believe this move is not merely a routine update on regulatory dynamics but may signal the onset of a more stringent regulatory era for cryptocurrencies.

Underlying Reasons for Regulatory Expansion

On October 21, 2024, the SEC released its review priority list for 2025, with “crypto assets and their related products and services” highlighted as key areas of focus. The commission made it clear that over the next year, it will scrutinize “offers, sales, recommendations, advice, trading, and other activities related to crypto assets,” with specific mention of spot products like Bitcoin and Ethereum exchange-traded products (ETPs). This decision marks a significant step, indicating an intensified level of oversight on the crypto market by the SEC.

The renewed focus on the crypto market stems from surface-level concerns about its volatility and investment risks, but deeper motivations include:

Protecting Investor Interests: The recent collapses in the crypto market, from Luna to FTX, have led to significant investor losses. The SEC is under social pressure to take further action to protect investors.

Technical and Security Issues: The complexities of blockchain and distributed ledger technology have heightened concerns regarding transparency, compliance, and security. The SEC’s assessment of registrants’ security risks related to crypto assets is aimed at addressing these challenges.

Market Institutionalization Needs: With ongoing applications for Bitcoin and Ethereum spot ETFs, there is a strong demand from the market. The SEC’s inclusion of these in its priority review could imply stringent oversight but also signals that they do not entirely dismiss crypto assets as compliant financial products.

Potential Market Impacts

The designation of crypto assets as a key area for review in 2025 will subject them to stricter scrutiny and compliance requirements, which will undoubtedly have far-reaching effects on the market. Key potential impacts include:

Volatility in Market Confidence: While the SEC’s heightened attention may initially instill a sense of security, it could also exacerbate the volatility of crypto assets, especially around events like ETF approvals or denials. Institutional investors may adopt a cautious stance in light of uncertain risks, potentially limiting capital inflow and affecting market activity.

Increased Survival Pressure on Small Projects: Heightened scrutiny from the SEC could place significant survival pressures on small crypto projects. Particularly those that are unregistered or face high registration costs may find themselves forced out of the market due to inability to meet compliance requirements. Conversely, larger projects, equipped with more resources and legal teams, are often better positioned to navigate regulatory challenges, reinforcing their market dominance.

Dual Effects on Technology and Innovation: The SEC’s evaluation of registrants’ capabilities in managing risks associated with blockchain technology may enhance safety standards within the industry but could simultaneously stifle innovation. The tension between technological advancement and regulatory demands may create short-term conflicts, particularly affecting innovative DeFi projects that may struggle to meet SEC standards.

Political Uncertainties

The political landscape in the U.S. adds further uncertainty to the crypto industry. The SEC could undergo leadership changes in 2025, potentially leading to different regulatory approaches. Current Chair Gary Gensler advocates for a focus on “protecting investors” and “helping the market understand the rules,” but a shift in leadership might introduce new regulatory strategies that could impact the crypto market.

If the new leadership adopts a more lenient stance towards crypto assets, it could encourage more financial institutions and investors to enter the market. Conversely, a successor with a stricter regulatory attitude may present greater compliance challenges for the crypto industry. This uncertainty complicates market participants’ predictions regarding the trajectory of U.S. regulatory policies in the coming year.

Global Trends in Crypto Regulation

The SEC’s renewed focus on crypto assets reflects a broader global trend towards stricter regulation of cryptocurrencies. As various countries tighten their regulatory frameworks, especially following the implementation of the MiCA regulation in Europe, the global crypto market is increasingly facing scrutiny.

For the crypto industry, this represents both a challenge and an opportunity:

Standardization in the Crypto Industry: A unified global regulatory standard for cryptocurrencies could enhance overall compliance levels, providing investors with greater security and facilitating crypto businesses’ access to broader markets.

Regional Market Disparities: Significant policy discrepancies between the SEC and other countries’ regulators may lead to capital flowing towards regions with looser regulations, creating opportunities for regulatory arbitrage. Crypto businesses must adapt their strategies according to the regulatory environments in different regions.

In summary, for companies, actively responding to regulatory changes, enhancing compliance, and improving technology and risk management will be essential strategies for navigating the evolving market landscape. For investors, maintaining a rational investment attitude while developing a clear understanding of the market prospects for crypto assets in an increasingly regulated environment is crucial.