Critiquing the SEC’s On-Going Efforts to Regulate Crypto Exchanges

Despite the so-called “Crypto Winter” in the spring of 2022, which saw a deep plunge in global crypto markets, interest in the appropriate way to develop, use, and regulate cryptoassets and crypto-based businesses continues to be high. In the U.S., a Presidential Executive Order and multiple bills that seek to tackle various issues of crypto regulation are regularly highlighted in the news, suggesting the appropriate treatment of crypto is a growing national priority. Despite these discussions, which tend to focus on finding a balanced way to regulate those within the industry without stifling the technology, the Securities and Exchange Commission (SEC) continues to seek to asset its jurisdiction unilaterally. A pending proposal from the SEC, misleadingly characterized as an attempt to regulate trading in government securities, would broaden the definition of “exchange” with potentially destructive consequences. This Article carefully considers the existing definition of “exchange” under the Securities Exchange Act of 1934 (the ’34 Act), and then examines a proposal from the Commission that would substantially broaden the current interpretation to reach a much larger group of persons involved in trading cryptoassets without adding clarity or a path to compliant operation for such persons. It then evaluates why the proposal creates problems, identifying a number of such issues, before concluding that a better approach would be to allow the legislative process to play out