A coalition of state attorneys general from across the United States has openly criticized the Securities and Exchange Commission for what they perceive as an overextension of its regulatory mandate.
This collective, comprising legal heads from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas, has taken a unique stance by neither siding with Kraken, nor outright opposing SEC’s regulation efforts. Their primary concern revolves around the potential for SEC’s actions to undermine state-level consumer protection laws and other regulatory statutes.
The attorney general’s critique surfaces in the wake of Kraken’s legal challenge against the SEC. Kraken argues the SEC lawsuit could unjustly broaden regulatory powers by alleging illegal activities and securities issues.
“The court should reject categorizing crypto assets as securities absent an investment contract. The SEC’s exercise of this undelegated authority puts state consumers at risk by preempting state statutes better tailored to the specific risks of non-securities products,” states the State Attorney.
The Debate Over Cryptocurrency Regulation
While the SEC has pegged its accusations on the premise that except for Bitcoin (BTC), all cryptocurrencies should be classified as securities based on the Howey Test—a benchmark for determining an asset’s security status—the attorneys argue this approach is flawed when applied to blockchain assets.
The SEC’s stance has long been a point of contention within the cryptocurrency community. The regulator’s November 2023 allegations against Kraken for operating as an unregistered exchange and broker, among other infractions, have only fueled this debate. Critics argue that the SEC’s broad application of the Howey Test to cryptocurrencies, aside from Bitcoin, fails to account for the unique nature and technological underpinnings of blockchain assets. This one-size-fits-all approach to regulation, they argue, does not adequately address the nuances of the crypto market.