Is This 1 new Move by the SEC a new Tailwind for Cryptocurrency or a Headwind?
Alex Carchidi, The Motley Fool
5 min read
It's often difficult to make sense of regulatory actions and changes to the structure and size of regulatory units. In a quickly evolving sector like cryptocurrency, it's even more challenging than usual. Sometimes it's not certain whether a major new development is going to be a boost or lead to a bust -- and there can be persuasive arguments in both directions.
If you're planning substantial crypto investments, understanding regulatory shifts and their implications is crucial. So here's what the latest big change is and what you need to do about it to stay ahead of the game.
The wild west is about to get even wilder
According to a report by The New York Times published on Feb. 4, the Securities and Exchange Commission (SEC) will be reducing its 50-person cryptocurrency law-enforcement group in keeping with the preferred policies of the new presidential administration. It's unclear if any or all of the activities originally assigned to the group will be handled by the newly formed Crypto Task Force created as part of an initiative by the new administration.
For now, what's certain is that the SEC's exercise of oversight of the cryptocurrency sector is set to get even weaker than it was before. From mid-2013 to the end of 2024, the SEC only executed 207 cryptocurrency-related actions, including litigation and other administrative proceedings.
Still, this new development has some important implications for investors. The proponents of the scaled-down unit at the SEC include those who claim that the cryptocurrency sector will be able to grow faster with fewer regulatory impediments. While that might be true for matters like approving new types of financial derivatives a bit faster than before -- or approving them at all -- the argument starts to fall apart when considering the need to protect investors from outright illegal activity such that they're confident enough to commit their capital to cryptocurrencies at all.
On chains like Solana (CRYPTO: SOL) and Ethereum, where fraudulent activity and outright scams have plagued investors for years, experiencing even less enforcement is unlikely to change the status quo for the better.
On the other hand, it is critical to note that it is probably difficult for the situation in many sub-sectors on these chains to get much worse, especially for meme coins. The vast majority of meme coins are already straightforward attempts to extract money from investors within minutes of their capital being committed. And serious investors do not dabble in those spaces for reasons other than a lack of enforcement.
While legal protections would in theory reduce many of the risks of these assets, they are still fundamentally incredibly volatile, risky, and without a strong tie to any fundamental value.
So there isn't necessarily a new headwind here even if there's certainly no tailwind to look forward to. Expect the fringes of these ecosystems to be as extractive and dangerous as ever.
A larger and older chain like Bitcoin, (CRYPTO: BTC) is already deeply integrated into the traditional financial system and thus is at least partially covered by the protections affecting that sector. But it is not clear that less enforcement by the SEC will change much of anything at all.
Investors can buy the coin directly in their retirement or brokerage accounts via exchange-traded funds (ETFs), which are still fairly tightly regulated. Despite their unreliability, cryptocurrency exchanges must still store and distribute user coins on demand; however, weaker regulations make them less appealing investment venues.
Finally, those who are technically inclined can buy it and hold it on the blockchain directly, and it isn't as though the SEC was doing much to crack down on scams involving fake blockchain interaction software or other vectors for theft.
Look at the big picture and how it is evolving over time
For most investors, the paring back of the SEC's crypto enforcement unit won't have any tangible impacts immediately, and it might not ever.
The major cryptocurrencies like Solana, Bitcoin, and Ethereum are established enough that, despite the presence of some problematic activities on their chains, they also have strong and multifaceted investment theses which do not require anything in the way of regulatory guardrails to continue playing out. Those theses will remain true, so the coins are still very much worth buying.
Just be aware that there are even fewer protections and even less hope of salvation if you lose your money investing in scam projects on their chain.
Should you invest $1,000 in Solana right now?
Before you buy stock in Solana, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Solana wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $829,128!*
Now, it’s worth notingStock Advisor’s total average return is948% — a market-crushing outperformance compared to176%for the S&P 500. Don’t miss out on the latest top 10 list.
Alex Carchidi has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.
