Patrick Daugherty Observes Favorable Changes in Cryptocurrency Regulation Following Elections

Under the guidance of Chair Gary Gensler, the Securities and Exchange Commission (SEC) has adopted a stringent approach towards the cryptocurrency sector, concentrating significantly on crypto regulation through legal actions against various crypto companies.

This “Enforcement-First” strategy has resulted in numerous legal disputes and considerable examination within the industry. However, with the impending presidential election, the regulatory environment in the U.S. may undergo changes, potentially affecting the future management of the crypto sector.

In an interview with Cryptonews.com, Patrick Daugherty, a partner at Foley & Lardner LLP who heads the firm’s digital assets division, conveyed his belief that there will be a positive transformation in U.S. crypto regulation following the elections.

SEC’s Regulatory Approach to Crypto

Daugherty criticized the SEC’s existing tactics, stressing the necessity for explicit rules and regulations rather than predominantly depending on enforcement actions.

“You can’t just always sue people without telling them what the law is first,” he remarked.

“I think the law requires a certain amount of notice to industry participants about what the rules are and what it is they’re supposed to do and not do before you sue them.”

He contended that this enforcement-first strategy generates uncertainty within the industry, and the SEC must offer clearer directives.

Daugherty underscored the difficulties encountered by industry participants under the current regulatory framework, highlighting the need for a balanced approach that fosters both regulation and innovation. He noted:

“Most people in the bar think that the crypto industry is being singled out for this. We do not see this happening in other industries. Not just now, but really ever.”

“I think it is best for an agency to use its power to make rules and regulations in a thoughtful manner with notice and hearings and comment letters and interpretations and all these usual rudiments of lawmaking rather than investigations and lawsuits as a primary mechanism,” Daugherty added.

Impact of Political Landscape on Crypto Regulation

Daugherty discussed the potential outcomes of the upcoming election, including former President Donald Trump’s evolving position on crypto. Initially against it, Trump has now shown support, pledging no Central Bank Digital Currencies (CBDCs) and advocating for the right to self-custody.

Patrick Daugherty (Source: Hongji Feng)

“I’m hopeful that things will improve after the fall elections, and they will certainly improve for the crypto industry if Trump is elected,” Daugherty stated.

He also anticipated possible positive developments if Biden is re-elected, predicting that Biden may appoint a new SEC Chair who could be more supportive of crypto, moving away from the stringent enforcement seen under Gensler.

“That’s what you do in a second term – you turn over the chairmen of your agencies,” Daugherty explained. He believed that the new appointee “will almost certainly be more favorable to crypto” than the firmly opposed Gary Gensler.

“You probably can’t get more opposed to it than he is. So it’s going to go from better to much better after the elections,” he remarked.

Jurisdictional Issues Between SEC and CFTC

Patrick Daugherty further elaborated on the ongoing jurisdictional disputes between the Commission and the Commodity Futures Trading Commission (CFTC) regarding the classification of digital assets.

As the SEC is engaged in a legal confrontation with Coinbase and attempting to classify certain cryptocurrencies as securities, the CFTC contends that cryptocurrencies are merely digital commodities and should therefore fall under its jurisdiction.

“I don’t think that they fight with each other as much as would seem to be the case. I think each of them is zealous about its own jurisdiction and about its own views of its jurisdiction,” said Daugherty, a former SEC lawyer during Ronald Reagan’s administration.

“CFTC also brings cases, make no mistake about it. Some of them are big cases. But it is easier for the industry to work with the CFTC than it is with the SEC and everyone acknowledges that,” he added.

Daugherty illustrated that it is the tension between agencies responsible for crypto regulation and congressional committees that is hindering progress, preventing a clear distinction between a security and a non-security commodity.

“It’s uniquely an American problem because in every other advanced economy, there’s only one regulator for both asset classes. Here we have two, for two separate asset classes,” Daugherty stated.

“So of course the regulators are going to fight over jurisdiction. That’s kind of what they do.”

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