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In March this year, the South Carolina Attorney General’s office shocked the crypto community when it issued a cease and desist order to Genesis Mining, one of the largest cloud mining service providers, for offering “unregistered securities”.
On July 26th, the Attorney General’s office quietly dismissed its order, allowing Genesis Mining to once again offer its services to residents of South Carolina.
Though no official statement was released explaining the decision, the reversal acknowledges that cloud mining activities should not be labeled as “securities”, thus sparing this type of business from a significant additional regulatory burden. At least for the time being.
What makes this reversal even more significant is that it gives us a glimpse into the politics within regulatory agencies, which restrain individual regulator’s actions.
Most regulators—state ones in particular—are not well educated on crypto. Since the industry is very new, regulatory certainty has not yet been established. Thus, state regulators are not sure how to approach the subject. But, being in law enforcement, they feel the need to do something to protect the public and carry out their mandate.
For whatever reason, Genesis Mining got on the radar of the South Carolina Attorney General’s office as a new “unregulated” crypto business. Having heard of various crypto-related scams in the news, they became fixated on their new target.
In shutting down this “suspicious” new business model, the regulators thought they were doing their jobs. What they didn’t realize was that in doing so, they were stepping on the toes of the big boys at the U.S. Securities and Exchange Commission (SEC).
As the SEC is the federal agency primarily responsible for regulating securities, they are supposed to be the ones to decide what is and is not defined a security.
Thus, for a state-level regulator to rule on this before the SEC had made any official decision is unusually and most like an affront to SEC authority.
In the face of backlash from local politicians, the business community, and now their superiors at the SEC as well, the South Carolina Attorney General’s office had no choice but to reverse their decision.
What does this mean for Crypto Law Insiders?
While this 180-degree reversal may be surprising to some, it shouldn’t be to readers of Crypto Law Insider.
What matters is not individual data points, but the overall direction. Thus, Insiders know not to fixate too intensely on any one event.
Overall, the reversal was a very positive indication for the crypto industry. And given the backlash that the South Carolina Attorney General’s office must have received, other state regulators will be reluctant to issue similar orders until the official regulatory framework has been established.