In SEC's new era, advisors and clients should rethink crypto

The last four years saw significant shifts in crypto regulation, as former Securities and Exchange Commission chair Gary Gensler brought rapid-fire actions against major crypto companies.

But with Paul Atkins, President Donald Trump's nominee for SEC chair, expected to pursue a more deregulatory approach toward the sector, financial advisors and their clients may wish to reconsider their approach to cryptocurrency.

When Gensler took office as the chair of SEC in April 2021, he announced his plans to regulate the crypto market sector, famously calling it the "Wild West." In the years that followed, Gensler's office did just that — bringing over 100 enforcement actions against major crypto companies, including Binance, Kraken and Coinbase. Gensler's aggressive approach, dubbed "regulation by enforcement," was criticized by those in the industry and by crypto-friendly politicians as misleading and ineffective.

By contrast, Atkins, who served as an SEC commissioner under President George W. Bush and who founded Patomak Global Partners, a consulting firm for major financial industry clients, is on record as being a foe of government overreach and aggressive enforcement tactics.

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Atkins' impact on the SEC may take some time to bear fruit as he and Acting Chair Mark Uyeda sift through the enforcement precedents set by the previous administration. But overall, market participants expect a less combative, less hostile approach to regulating crypto markets and a more collaborative regulatory environment that will promote crypto innovation and investor adoption. 

Here are some key changes to watch for. 

Improved regulatory clarity

Under Atkins' leadership, the SEC is expected to provide a clear legal framework and direction for crypto companies and investors to follow, reducing opportunities for misinterpretation. 

While specifics are still unclear, this may include defining clear classifications for tokens to determine whether they are securities or commodities, providing a standardized framework to reduce the ambiguity caused by overlapping agency jurisdictions and creating robust regulations for crypto exchanges to enhance market integrity.

In addition, Atkins will likely seek feedback from the crypto industry and support its efforts to pave the way for industry growth.

Increased approval of crypto products

Last year marked a milestone in investor access to crypto and crypto-related products, with the SEC approving bitcoin and ethereum spot ETFs, as well as spot ETF options. 

These new products and their popularity — to the tune of billions of dollars being traded daily in some cases — could pave the way for SEC approval of new institutional and retail crypto products.

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Congressional partnerships

Congressional interest in the digital asset ecosystem is likely to grow under Atkins' leadership. 

With bipartisan interest in digital assets gaining steam — and with it, hopefully, a more collaborative approach to crypto regulation — pending legislation could become law. One example is the Financial Innovation and Technology for the 21st Century Act. Passed by the House in May, it aims to create clarity and consumer protections in the digital asset ecosystem by establishing clear classifications for digital assets, defining regulatory authority between the SEC and CFTC and mandating robust consumer disclosures.

Client guidance for a new era

As new leadership at the SEC aims to clarify the regulatory framework, financial advisors have a unique opportunity to position themselves as trusted guides in this evolving space. Although investors shouldn't plan to time crypto markets, I expect more advisors and clients to have conversations about whether allocating a small percentage of their portfolio to long-term crypto exposure is suitable in some cases.

By staying proactive, understanding the implications of regulatory changes and providing thoughtful recommendations, advisors can help clients navigate the complexities of crypto investment with confidence.