When Securities and Exchange Commission (SEC) Chairman Gary Gensler last year compared digital-asset regulation to “the Wild West,” it may have brought to some observers’ minds a picture of lawlessness.

Indeed, a single framework of rules guiding oversight of the space has yet to emerge.

That notion was punctuated this week, when the House Financial Services Committee, once expected to issue draft legislation on the subject as part of a Wednesday markup, delayed its timeline so it could continue negotiations throughout Congress’ August recess.

But as this week has demonstrated, the lack of overarching guidance hasn’t stopped regulators from using laws that are on the books in attempts to govern digital assets.

The SEC is investigating whether Coinbase is letting its U.S. users trade tokens that should have been registered as securities, Bloomberg reported this week, citing unnamed sources. 

News of the probe comes less than a week after the Justice Department (DOJ) charged a former Coinbase product manager, alleging he alerted his brother and a friend as to when Coinbase would list certain tokens on its exchange, so they could buy them beforehand. The SEC also sued the three men on suspicion of insider trading.

The SEC did not allege wrongdoing by Coinbase but said it had determined nine of the digital tokens the men traded were securities, including seven listed on the exchange. 

Coinbase’s chief legal officer, Paul Grewal, disputed that finding in a company blog post last week. 

“The DOJ reviewed the same facts and chose not to file securities fraud charges against those involved,” Grewal wrote. “Coinbase has a rigorous process to analyze and review each digital asset before making it available on our exchange — a process that the SEC itself has reviewed.”

That process includes analyzing whether the asset could be considered a security and taking into account the regulatory compliance and information security aspects of the asset, Grewal wrote.

But another regulator’s weigh-in on the SEC-Coinbase spat may add a wrinkle to the discussion surrounding crypto regulation.

Caroline Pham, a commissioner with the Commodity Futures Trading Commission (CFTC), blasted the SEC’s insider-trading suit as “a striking example of ‘regulation by enforcement’” that “could have broad implications beyond this single case, underscoring how critical and urgent it is that regulators work together.”

Coinbase’s beef with the SEC is well-known. In a series of tweets last September, CEO Brian Armstrong accused the regulator of “sketchy behavior” and “intimidation tactics” for threatening to sue Coinbase if it launched a high-yield crypto lending vehicle. Coinbase scrapped the product. But a month later, when it issued a policy document outlining its vision of crypto regulation, that vision did not include the SEC. 

Another crypto firm, Ripple, later published its own thoughts on crypto regulation and leaned into the idea that the CFTC could better police the space. (Ripple, too, has its squabbles with the SEC. It accused the SEC of “picking virtual currency winners and losers” when the regulator sued the company over its sale of the XRP token, which lost 60% of its value over the week that followed.)

A call for unity

Pham is not the only CFTC commissioner to issue a call for unity among regulators adjacent to the crypto space. 

“The digital asset market would benefit from uniform imposition of requirements focused on ensuring certain core principles, including market integrity, customer protection and market stability,” the CFTC’s acting chief, Rostin Behnam said Monday in remarks to the Brookings Institution. 

The CFTC must work closely with fellow regulators and authorities, Behnam said, but “even the strongest cooperative relationships may not yield the efficiency we need to put hard and fast stops to misconduct that increasingly has impacts beyond individual investors.”

The agency continues to look at how it can police the space “within the bounds of [its] existing authority,” Behnam said. But “given the regulatory vacuum,” the CFTC is also “thinking creatively about how else [it] can use” that authority to protect the market and its investors.

“Our individual missions should not diminish our efforts toward a coordinated federal approach in this area,” Behnam said.

Behnam urged lawmakers in February to grant the CFTC an expanded role in regulating the cryptocurrency market, and give the regulator an extra $100 million to do so.

The SEC and CFTC aren’t the only bodies engaging in enforcement around the digital asset space. The Treasury Department’s Office of Foreign Assets Control is expected to fine the crypto exchange Kraken over allegations that it allowed users in Iran and elsewhere to buy and sell digital tokens, in violation of U.S. sanctions, The New York Times reported Tuesday, citing unnamed sources. An investigation into the matter has been ongoing since 2019, according to the Times. 

‘Seat belts’

With the SEC, CFTC, DOJ and Treasury all touching crypto, perhaps Gensler’s assertion of a “Wild West” stems not from lawlessness but from ambiguity: namely, which agencies can lay claim to what authority with which existing laws?

Much talk of a “crypto winter” has surrounded the rapid devaluation of several crypto platforms and tokens. As summer turns to fall, observers may be looking to Congress to thaw out the differences preventing stablecoin legislation from coming together before the actual, seasonal winter.

A draft of the bill would give banks the ability to issue their own stablecoins and put nonbank issuers under Federal Reserve oversight, Politico reported this week. The bill also would mandate 100% reserves in cash or high-quality liquid assets for stablecoins, along with strong anti-money-laundering requirements for “payment stablecoins” — meant more for transactions than investment.

Disagreements over the role of algorithmic stablecoins, as well as oversight of digital wallets, exacerbated the legislative delay, American Banker reported. 

The Treasury Department pushed for changes that would require digital wallet providers to keep customer assets segregated — ensuring they be preserved in the event of insolvency, Politico reported.

The draft, notably, did not detail whether a stablecoin should be legally covered as a security or commodity, according to American Banker.

In that vacuum, Gensler — in a video posted to Twitter on Thursday — said he’s asked SEC staff to work with crypto exchanges to get their tokens registered and regulated as securities, and to consider segregating the platforms’ market-making functions.

To crypto platforms’ arguments that their businesses merit oversight from a new regulator, Gensler said Thursday, “There’s no reason to treat the crypto market differently just because a different technology is used. That would be like saying drivers of electric cars don’t need seat belts because they don’t use gas.” 

Without a new, Congress-generated framework clarifying the boundaries of enforcement, regulators’ attempts to police the Wild West crypto space may seem the equivalent of “citizen’s arrests.”

But then, maybe Gensler’s Wild West analogy has perpetuated for nearly a year because the SEC has painted itself in the Hollywood role of a righteous cowboy while everyone else remains either an outlaw or — fellow regulators included — a distressed onlooker.