• The Securities and Exchange Commission (SEC) is continuing to regulate crypto assets by enforcement in 2023, with a nearly doubled team size.
• The SEC believes that the “vast majority” of crypto assets are securities, while non-fungible tokens may be investigated.
• SEC Chair Gary Gensler is taking an approach similar to his tenure at the Commodity Futures Trading Commission (CFTC), disregarding industry opposition and leveraging existing frameworks.

Crypto-assets have been on the rise for the past decade, since Satoshi introduced the world to the peer-to-peer electronic cash system called Bitcoin. As the crypto-asset sector grows, so does the need for regulatory oversight. In the U.S., the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are the primary crypto-asset market regulators. After one of the most eventful years in crypto to date, what can we expect from these two agencies in 2023?

The SEC is leading the charge when it comes to crypto-asset regulation, and in early 2022 the agency nearly doubled the size of its crypto-asset enforcement team. SEC Chair Gary Gensler believes that the “vast majority” of crypto assets are securities, with only a few that may not be. While Gensler has said that he may not “think CryptoKitties is a security,” the SEC is reportedly still investigating non-fungible tokens.

The SEC regards many crypto assets as a type of security called an “investment contract.” According to the U.S. Supreme Court’s decision in SEC v. W.J. Howey & Co., an investment contract is a contract, transaction or scheme whereby an investor invests money in a common enterprise with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.

Chair Gensler’s approach to regulating crypto assets is similar to his approach when he was previously chairman of the CFTC. During his tenure at the CFTC, Gensler implemented new swap market regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted in the wake of the 2008 financial crisis. His SEC tenure is similarly disregarding industry opposition and leveraging the existing futures regulatory framework.

With the SEC’s enforcement team nearly doubled in size, and the agency’s Chair taking a firm stance on crypto-asset regulation, we can expect the agency to remain a major player in the crypto-asset space in 2023. The CFTC is also expected to play a key role in crypto-asset regulation, with the agency’s chairman pushing for more transparency and accountability in the crypto-asset industry. As crypto-assets continue to evolve, so too will the regulatory landscape surrounding them.