Summary:
- The SEC has lost nearly 15% of its staff under the new administration, weakening regulatory oversight.
- Retail investors and small businesses face the biggest threats from ongoing deregulation.
- SEC Commissioner Caroline Crenshaw warns that dismantling carefully built financial safeguards is like playing “regulatory Jenga.”
- Recent SEC moves on crypto enforcement resemble a “wink and a nod,” risking market stability.
- Republican SEC voices argue crypto regulation has stalled and many tokens aren’t securities.
- Parallels are drawn between current deregulation trends and the lead-up to the 2008 financial crisis.
A Tower of Rules at Risk
The Securities and Exchange Commission (SEC) is undergoing significant changes, with nearly 15% of its staff departing since the new administration took over. This exodus has left the agency’s regulatory muscle visibly weakened—especially in overseeing the rapidly evolving cryptocurrency market.
Caroline Crenshaw, the SEC’s only remaining Democratic Commissioner, has expressed deep concern over the current approach to crypto regulation. Speaking at the SEC Speaks event on May 19, she likened the situation to a precarious game of “regulatory Jenga,” where removing key rules risks toppling the entire structure.
“Our proverbial Jenga tower is made up of a set of discrete but interrelated rules and laws, deeply and carefully developed over the years,” Crenshaw said. “How many blocks can you pull before the tower gives way?”
Deregulation: Who Pays the Price?
Crenshaw warned that recent rollbacks—such as reversing rules through staff guidance without thorough analysis or public input—are undermining the SEC’s enforcement capabilities. This “wink and a nod” approach, especially toward crypto, not only diminishes the agency’s credibility but also disregards lessons from past failures like the 2022 FTX collapse.
While Republican commissioners offered a contrasting view—former Chair Paul Atkins argued that crypto markets have been bogged down by SEC reviews for years, and Hester Peirce claimed that most cryptocurrencies aren’t securities—the real danger lies in what deregulation could mean for everyday investors.
Crenshaw drew a stark parallel to the period before the 2008 financial crisis: “Before a crisis happens, everyone demands that regulators get out of their way.” She cautioned that such deregulation ultimately harms small businesses and retail investors and may set the stage for future financial turmoil.
The Road Ahead
As the SEC faces staffing challenges and a shifting regulatory philosophy, the financial community—particularly retail investors and small enterprises—should remain vigilant. The “regulatory Jenga” game risks toppling protections built over decades, making it essential to carefully weigh the consequences of deregulation in emerging markets like crypto.