This analysis was first published in SvD Näringsliv, in Swedish, on October 4th, 2022. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.
Kim Kardashian’s million-dollar fine sends a clear signal to the crypto world: regulation is catching up. And nobody is safe.
Gary Gensler — chairman of the SEC, the US financial regulator — gave a speech at the Aspen Security Forum in Washington DC. Gensler had barely warmed his seat, having spent less than six months in his new role.
He then posed a rhetorical question: what does the SEC have to do with crypto?
Just over a year later, we have our answer: quite a lot. And it is only going to grow.
The Wild West era of cryptocurrency is drawing to a close, and regulators are now making it unmistakably clear that they are back in the game. How else do you interpret fining Kim Kardashian — one of the most famous people on the planet — for improperly promoting a cryptocurrency? Kardashian is neither the first, the last, nor the worst offender in this regard. But the signal value could hardly be greater.
In a slick, slightly tongue-in-cheek video, Gensler walks through how you often cannot tell whether the person promoting a cryptocurrency has been paid to do so, or whether their interests align with yours. So far, nothing especially radical. More interesting is the language used just above the video: the SEC charged Kardashian with peddling a “crypto security” — a crypto-based financial instrument.
That was precisely what was implied at the Washington DC speech in 2021. Cryptocurrencies should be treated like any other security, and we already have laws that regulate securities. The SEC stands for “Securities and Exchange Commission.” It was always inevitable that they would view this as a security.
Gary Gensler has credibility on these issues. He has taught courses on cryptocurrency at MIT. Within the industry, he has been seen as a guarantor that any new regulation would be workable and realistic — something that cannot always be said when politicians attempt to regulate technology. That said, crypto traders would probably prefer to keep things exactly as they are today — that is, an essentially unregulated market.
There is, however, a great deal that needs regulating. The scale of the problems has grown so large that it can no longer be dismissed as a niche issue. The cryptocurrency Terra, with a market cap worth hundreds of billions of kronor, lost 99 percent of its value in less than a month. The man behind Terra, Do Kwon, is now the subject of an international arrest warrant. Crypto lender Celsius Network went bankrupt last summer with a multi-billion kronor hole in its balance sheet. Just before the bankruptcy — and before customers had their accounts frozen — founder Alex Mashinsky managed to withdraw a large sum for himself. This was done, apparently, only to cover his taxes, according to a spokesperson.
On an almost daily basis, there are reports of people being hacked, technical failures that have wiped out savings, or outright fraud in the crypto space. Failing to take any legal action against this is becoming an embarrassment for regulators. That is the context in which to read Kim Kardashian’s fine — a warning shot of what is to come.
The regulation itself may turn out to be more familiar than many had expected. In another speech a few weeks ago, Gary Gensler said that “nothing in the crypto market is incompatible with securities laws.” This suggests there will be no bespoke regulatory framework for this new industry after all. Its participants may simply have to do what everyone else who deals in securities does — follow the laws that already exist. That could prove painful enough for the many reckless and unscrupulous players in the crypto market.
