The SEC’s US regulatory crackdown and what it means for crypto mining
The U.S. Securities and Exchange Commission (SEC) stepped up its regulatory crackdown efforts on the crypto industry following the FTX crash in November, which led the crypto market to lose billions. The U.S. regulator has since cracked down on major crypto companies, projects, and even crypto mining companies. This article will look at the SEC crackdown in the crypto and crypto mining industry and what it means for crypto mining.
SEC cracks down on crypto exchanges
The SEC filed a lawsuit against Binance and its founder, Changpeng Zhao, for allegedly operating a “web of deception” and offering 12 cryptocurrency coins that were unregistered securities. Meanwhile, the SEC also charged Coinbase with trading 13 crypto assets they should have registered as securities.
According to the report, the SEC considers most cryptos as securities. Hence, most crypto companies and trading have to be supervised by them and follow their regulatory framework on securities. The regulator highlighted that several tokens, such as Polygon, NBN, Cardano, and Solana, were securities since the exchanges sold them as an investment contract.
These cases are similar to the Ripple case of December 2020, whereby the SEC argued that XRP was an unregistered security. However, the SEC, to date, has yet to provide a conclusive answer to what cryptocurrencies can be considered securities and which ones are not securities.
Worth noting is the aftermath these cases had on the charges exchanges. Coinbase customers, for example, pulled around $1.28 billion from the exchange, and its parent company, Coinbase Global Inc, shares fell about 20.9% in a day.
Crypto mining crackdown
The SEC has been clamping down on cryptocurrencies over the last few months, and crypto mining was not left untouched. On March 3, the regulator filed a lawsuit against Green United LLC, a crypto mining firm, for the fraudulent sale of crypto mining equipment and assets to investors worth $18 million. The firm made false statements to sell its mining hardware to investors with fake offers whereby they would gain profits through its native token, GREEN.
The SEC recently charged Marathon Digital, a prominent Bitcoin mining company, with an alleged securities laws violation. The company announced its subpoenaed to produce documents and information on its operations, which they said were fully cooperative.
Meanwhile, this was not the first time the regulators scrutinized the company. Marathon was subpoenaed in September 2021 by the SEC to gain access to the company’s documents regarding its Montana-based facility.
Impact of the SEC crackdown on crypto mining
As the U.S. Securities and Exchange Commission (SEC) intensifies its regulatory crackdown, ensuring compliance with relevant securities laws will be crucial for mining projects. So far, the SEC has mentioned that it considers most cryptos securities. While this is not a clear stance, crypto mining companies must evaluate their operations and be ready to make adjustments after introducing clear guidelines. When the SEC classifies a token as a security, its registration falls under the securities laws; hence these companies may need to file with the SEC to avoid lawsuits.
Regulatory actions that are coming up against mining projects may erode investor confidence, whereby they may be wary of engaging with mining projects considering they are under tight scrutiny. Meanwhile, there is still an unclear regulatory stance which is detrimental to crypto companies, especially when the need arises to secure funding.
Crypto miners may also be affected in terms of investment returns. Uncertainty around the regulatory landscape generally affects the value of cryptocurrencies and the demand for mining services. The uncertainty could lower the market value since the buyers are unsure what could happen next. Hence, the profits also go down for the crypto miners, and their mining services demand goes down.
The US views on crypto mining
Crypto mining involves specialized computer hardware and software to solve complex mathematical puzzles that ensure the network is secure. Usually, the first miner to solve the puzzle receives a reward in newly minted cryptocurrency tokens. Crypto miners typically use powerful computer systems called mining rigs optimized for mining. However, these mining rigs use significant energy, raising concerns over environmental impact.
As part of this year’s U.S. Treasury Department budget, the Biden administration came up with the Digital Asset Mining Energy Excise Tax in March, citing “negative spillovers” from the crypto industry as justification. However, the agreement negotiated between President Joe Biden and House Speaker Kevin McCarthy recently on raising the nation’s debt ceiling has abandoned the proposed 30% tax on electricity used by bitcoin miners in the United States.
Despite the Biden administration’s outlook, several states in the United States, including Texas, Arkansas, and Montana, have been more receptive to cryptocurrency miners and have proposed laws to shield the industry from unfair taxes and regulations.
Although there have been suggestions that Bitcoin mining can increase investment in renewable energy and boost grid efficiency, miners can only choose renewable energy as a source if they are directly hooked on renewable energy sources. The fact that crypto miners are not subject to taxes may be good news for American miners. Still, it also means that the anticipated 25 to 50 million tons of CO2 that crypto will produce in America annually will remain an unsolvable problem, something that the SEC might even use in its efforts to regulate crypto mining.
The SEC regulatory crackdown has significant implications for the crypto mining industry. As the regulator asserts its jurisdiction over the crypto space, mining projects will face more scrutiny and might need restructuring to avoid legal consequences. However, the ongoing regulatory uncertainty is worrying for the industry and remains an issue.
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