Regulators Targeting Cryptocurrency Businesses: Innovation or Regulatory Arbitrage?

Financial Times columnist Jemima Kelly recently published a column titled "Crypto shows we shouldn’t venerate ‘innovation’ for its own sake," recommended by former SEC lawyer John Reed Stark, who has also been actively praising SEC enforcement on Twitter. Here is a summary of the article:

Recent Regulatory Crackdown on Major Cryptocurrency Players

Jemima Kelly has pointed out that the cryptocurrency industry is facing immense pressure. Following a series of collapses and bankruptcies last year, industry giants Coinbase and Binance, both highly profitable cryptocurrency companies, have been sued by the U.S. regulatory agency SEC for several consecutive days this month. Another major player, Ripple Labs, continues to battle legal actions dating back to 2020, having incurred legal fees exceeding $100 million to date.

Industry Claims Innovation Suppressed, Regulators Firmly Deny

In this regulatory storm, those facing legal actions are not fraudsters, but rather companies attempting to present themselves as legitimate businesses and seeking recognition from regulatory agencies, Silicon Valley, and the political sphere. These companies claim that the cryptocurrencies they are promoting are not mere speculative hype, but rather crucial innovations. Therefore, they believe that any radical regulation or punishment of cryptocurrencies will stifle this so-called "innovation."

However, the U.S. Securities and Exchange Commission rebuts these claims, asserting that their goal is to combat fraud, not to stifle innovation.

Innovation and Regulation: Discrepancies Between the Cambridge Dictionary and Reality

Jemima Kelly suggests that people should carefully consider what innovation truly means.

What exactly is "innovation"? The Cambridge Dictionary defines innovation as "a new idea or method" or "the act of introducing new ideas or methods."

However, in reality, innovation is often used to describe new technologies that are not fully understood by anyone but may prove useful one day and certainly profitable. This behavior of using innovation as a means to make money often exploits loopholes in existing regulations until regulatory agencies intervene: this is known as "regulatory arbitrage." Today, regulatory agencies are catching up with these opportunistic cryptocurrency "innovators."