SEC’s Crenshaw Warns Crypto Regulation Turning Into ‘Regulatory Jenga’

Caroline Crenshaw, the U.S. Securities and Exchange Commission’s sole Democratic commissioner, has sharply criticized the agency’s evolving approach to crypto regulation, describing it as a risky game of “regulatory Jenga” that could destabilize long-standing market safeguards.

Speaking on May 19 at the SEC Speaks event, Crenshaw accused the agency of quietly unraveling key enforcement principles and internal rules, particularly around cryptocurrency, without appropriate public input or analysis.

“Our statements on these crypto-related issues are the equivalent of a wink and nod intended to convey that we do not plan to rigorously apply our laws in certain, specific situations,” Crenshaw said. She warned that dismantling “discrete but interrelated rules” risks toppling the regulatory framework, just like a Jenga tower losing its critical blocks.

Crenshaw expressed deep concern over what she described as “regulation by non-enforcement,” claiming that the SEC has selectively abandoned crypto-related enforcement actions in recent months. She added that this sudden shift damages the agency’s credibility in court and casts doubt on foundational case law, especially as crypto becomes more intertwined with traditional finance.

SEC Commissioner Crenshaw. Source: SEC

The commissioner also referenced the 2022 collapse of crypto exchange FTX as a cautionary tale, arguing that the systemic risks that caused the crisis remain present. “Failing to appreciate and address these risks and complexities destines us to repeat hard lessons with high stakes,” she said.

Crenshaw, who also opposed the SEC’s high-profile settlement with Ripple, said the regulator’s recent actions contradict the lessons learned from past crypto failures.

In contrast, Republican commissioners at the same event offered a more crypto-friendly stance. SEC Chair Paul Atkins stated that “crypto markets have been languishing in SEC limbo for years,” and the agency should not stifle innovation.

Commissioner Hester Peirce, who leads the SEC’s Crypto Task Force, criticized the Biden-era approach to crypto as lacking in sound regulatory discipline. She argued that many crypto assets currently trading in secondary markets no longer meet the definition of securities.

“Even if a broad swath of the crypto assets trading in secondary markets today were initially offered and sold subject to an investment contract, they clearly are no longer bought and sold in securities transactions,” Peirce said. “Many of these crypto assets are functional.”

Commissioner Mark Uyeda echoed the sentiment, adding that the SEC should work to assure the public that it will not use “regulation by enforcement” as a tool for future policymaking.

The contrasting views underscore a growing ideological divide within the SEC over how to regulate the rapidly evolving crypto sector — a debate that could shape the future of digital asset oversight in the U.S.