In February, the Department of Government Efficiency (DOGE) began soliciting public input regarding the U.S. Securities and Exchange Commission (SEC) — sending a clear signal that reform at the agency is on the horizon.
Since that request, the SEC has adopted a less adversarial approach towards the cryptocurrency industry, reflecting the current administration’s stance. Key appointments of crypto-friendly personnel and the cessation of numerous lawsuits and investigations into crypto companies underscore this shift. However, DOGE’s potential to drive further change highlights the growing pressure on regulators to reassess their approach to digital assets.
Responding to the call for public input, Paul Grewal, Chief Legal Officer at Coinbase — a company recently free from SEC litigation — proposed a policy requiring the SEC to reimburse legal costs for companies that successfully challenge its enforcement actions. While the implications of Grewal’s suggestion are significant, the potential impact of DOGE on the cryptocurrency sector is likely to extend even further.
As Joel Khalili articulated in Wired, the SEC’s recent retreats from lawsuits indicate an intent to collaborate with the industry in developing clear regulatory frameworks for crypto transactions and products.
Currently, the SEC’s lack of proactive guidance poses challenges for businesses in planning long-term compliance strategies, often resulting in enforcement actions occurring long after companies have begun operations, thus exposing them and their investors to unanticipated legal risks. This is expected to change moving forward.
Clear Compliance Over Reactive Enforcement
The SEC’s reliance on enforcement rather than proactive guidance has forced prominent companies like Coinbase, Ripple, and Celsius to spend significant resources on litigation to clarify their regulatory status. In one notable case against Debt Box, the SEC acknowledged inaccuracies in its statements, prompting a court ruling that the agency should cover the company’s legal expenses. This ruling has raised concerns over the SEC’s credibility and highlighted the problematic nature of its enforcement practices.
Future expectations point to regulatory agencies — including the SEC — facing renewed pressure to adopt the U.S. Treasury’s stance, which emphasizes clear compliance pathways over reactive enforcement. The Treasury’s digital asset guidelines are more structured and touch on essential areas like tax reporting, compliance, and Anti-Money Laundering (AML) measures. Establishing standardized definitions of what constitutes a security in the crypto landscape is crucial for assisting companies in appropriately structuring their products from the outset.
A Balancing Act
In addition to learning from the Treasury, the SEC might also draw inspiration from the IRS. Implementing a “safe harbor” provision for early-stage projects could foster innovation while gradually ensuring compliance, following proposals previously discussed by SEC Commissioner Hester Peirce. The IRS has already adopted such an approach by offering temporary transitional relief for crypto taxpayers in early 2025.
The IRS has traditionally used voluntary disclosure programs to encourage compliance among taxpayers rather than imposing punitive actions upfront. A similar model could be beneficial for crypto regulation.
Contrary to common belief, regulation does not inherently hinder innovation; it can, in fact, promote it. By establishing clear regulatory guidelines, the industry can attract more risk-averse participants, which will ultimately foster growth in the ecosystem. A light regulatory touch necessitates robust backend enforcement and can otherwise lead to unnecessary friction between regulators and businesses.
Enhanced coordination between the SEC, Treasury, and IRS would aid in preventing regulatory conflicts and simplifying compliance obligations for digital asset companies and stakeholders. The Treasury’s digital asset guidelines provide a solid foundation for the necessary cross-agency alignment. In contrast, the current regulatory uncertainty coupled with the SEC’s reactive enforcement approach stifles growth; a more coordinated framework would benefit the entire ecosystem.
The Bottom Line
Given DOGE’s recent request for public input, the new administration’s broader commitment to digital asset reform, and Coinbase’s forward-looking proposal, the stage is set for impending reforms aimed at making regulatory oversight more predictable. Even in the early stages of the new administration, rapid changes are occurring. It is evident that DOGE’s influence on SEC policies will be significant — especially as public discourse strengthens the case for clearer standards over regulatory enforcement.
However, it’s important to recognize that DOGE’s agenda for the SEC may extend beyond cryptocurrency, just as the industry’s regulatory efforts do. Ultimately, constructive collaboration between the new administration and Congress could lead to a coherent legislative framework for the digital asset sector, clarifying definitions for commodities, securities, and digital assets for both enterprises and individual taxpayers. In summary, it’s essential to establish a foundational understanding before advancing too swiftly; the SEC’s strategy should aim to facilitate growth while safeguarding investor protections.
