U.S. Securities and Exchange Commission (SEC) Chair Gary Gensler thinks the cryptocurrency industry is playing a game with his agency. He has said that companies are well aware of what they have to do to operate legally within the U.S. but they’ve decided not to do it – some of them in open scorn of the regulator.

Is the crypto industry pretending it doesn’t know what the SEC wants – as the agency keeps illustrating in cases like the recent action against the Terra/Luna ecosystem and its founder – and how long can that go on?

“The law’s pretty straightforward,” Gensler said in response to questions from CoinDesk last week. The ongoing insistence from the industry that the SEC is leaving crypto without clear rules is a “false narrative,” he said.

Late last year, a what-is-the-SEC-waiting-for sense started building among industry insiders, because the crypto enforcement cases had seemingly slowed. Many wondered whether the commission was waiting for the outcome in its key court case with Ripple before forging further into legal battles with crypto firms. But the SEC leapt out of the gates in 2023 with a series of actions and policy decisions with huge potential implications for digital assets.

"It's been quite deliberate in an attempt to reach more kinds of participants in the market, and have an ability to bring enforcement action across a wider range of targets," said Amy Jane Longo, a former trial lawyer for the SEC in Los Angeles who now works at Ropes & Gray. Apart from its campaign against token issuers and platforms, her former agency has been tackling everything from staking services to stablecoins to celebrity promotions.

The industry’s chief complaint hasn’t wavered: The SEC is rebuffing the sector’s pleas for the regulator to issue actual rules, so crypto efforts have no choice but to carry on as the government walls are closing in. But the U.S. securities regulator has been building a fairly detailed set of implied standards with every enforcement action, application ruling or policy decision it makes.

Crypto lawyers are well aware, in most cases, of what the SEC thinks defines a token as a security, leaning on legal standards such as the so-called Howey Test to lay it out over and over in enforcement documents. And the lawyers also know which companies the SEC believes should be registered as national exchanges.

“The SEC has been consistently applying longstanding, well-known, and clear securities laws to crypto activities,” said Dennis Kelleher, CEO of Better Markets, a Washington, D.C., group that pushes for tougher financial protections. “The fundamental problem is that the crypto industry has intentionally chosen not to comply with those securities laws.”

By now, a long list of cases has formed this shadow standard for what’s not OK in digital assets. And the trillion-dollar question is how the SEC is backing up Gensler’s assertion that almost all of the tokens in circulation are securities. The chairman insisted to a group of reporters last week that there are virtually always business interests associated with each token effort, checking one of the boxes for what his agency is weighing in its securities tests.

“Other than bitcoin, where is there not a group of entrepreneurs in the middle?” he asked.

At the end of 2020, the SEC targeted Ripple in a lawsuit that accused it of selling the XRP token as an unregistered security. That case remains in federal court and the eventual decision is bound to send shockwaves through the industry, whichever way it goes.

But the SEC already found some success in the interim with similar accusations against startup LBRY. A federal judge in New Hampshire ruled in November thatits native LBC tokens were unregistered securities.

A $50 million settlementwith failed crypto lender BlockFitargeted its high-yield lending product. And the agency’s enforcement division even built indirect cases against other tokens and issuers bynaming several of themin an insider-trading case against a former manager at Coinbase (COIN).

On the exchange front, the agency went after Poloniex in 2021 as an unregistered exchange, and thecompany’s $10 million settlementbegan to signal the SEC’s view on when digital trading platforms should register as national exchanges.

Gensler suggests he’s frustrated over the crypto platforms’ unwillingness to come through his doors.

Kraken’s CEO “publicly said they were never going to register with the SEC – boldly said that,” Gensler said. “These platforms aren't even coming in and asking for the meetings,” he said, adding that “I really deeply respect” the few that have come in.

For their part, industry insiders say the SEC rarely has a real path to offer crypto firms. Longo said few companies have made any headway on the registration question.

“That feels a bit hollow to people in the markets who are trying to figure out how to comply with what the agency wants,” she said.

While Gensler continues to warn about the compliance runway growing ever shorter, recent weeks have seen a surge in SEC cases that could further tip the scales.

The agency piled onto the litany of civil and criminal accusations against fallen crypto platform FTX by saying its exchange token,FTT, is an investment contractthat should be in the hands of SEC oversight. The regulator then pursued casesagainst Gemini Trust and Genesis Capitalfor yield products it also considers securities (like BlockFi’s), andagainst Kraken, arguing the firm’s staking service fit that same bill. (Genesis is a subsidiary of Digital Currency Group, CoinDesk’s parent company.)

Last week, the regulator accused Terraform Labs and co-founder Do Kwon ofdeliberately misleading investorsabout the strength of the doomed TerraUSD stablecoin and – in a now familiar SEC claim – selling unregistered securities. The next in line for the SEC’s securities scrutiny could be Paxos, which received a notice from the agency that it may be in trouble for issuing the Binance USD token as an unregistered security – an accusationPaxos denies.

“For all these settlements and district court cases that are out there, there are still a lot of aspects that are unanswered, and I think that is part of what makes it particularly difficult trying to navigate enforcement risk in this area,” Longo said.

Difficult or not, Kelleher is cheering on the federal authorities.

“The way forward to rein in a knowingly lawless industry like crypto is for regulators like the SEC and prosecutors like the Department of Justice to apply the full force of the law,” he said.

Last year, the SEC bulked up its newly named Crypto Assets and Cyber Unit by 20 positions, signaling the enforcement push we’re seeing now. Setting aside the bulk of the agency’s crypto cases, which were chasing old-fashioned crooks stealing people’s money or pursuing a crackdown on so-calledinitial coin offerings, the list of consequential cases is still considerable.

Gensler has sought to send a message to the cohort of celebrities that have hawked digital tokens for money,including Kim Kardashian. His agency’s latest action was against National Basketball Association Hall of FamerPaul Pierce, a former star of the Boston Celtics, who agreed to pay $1.4 million last week to settle accusations he’d promoted ethereumMax (EMAX) tokens without disclosing that he was paid $244,000.

With its enforcement actions, the commission has been defining which tokens, yield products and staking services are considered investment contracts in the regulator’s eyes. And it’s also been defining which firms should register as exchanges and how to avoid getting in trouble for marketing tokens while getting paid to do it.

But the SEC has also been shaping the industry with other moves, including its series of high-profile rejections of applications toset up a spot bitcoin exchange-traded fund(ETF). Most recently, the regulator has finally moved into policy efforts with explicit mention of the crypto sector.

Last week, the commission proposed a rule that would insist that SEC-registered investment advisers – including massive hedge funds and advisers representing major institutional money – ensure that their clients’ assets only be placed with “qualified custodians.” That’s a narrow range of banks, broker dealers and similarly regulated firms, which Gensler said would leave out unregistered crypto platforms.

While a number of digital assets companies – such as Coinbase, Anchorage Digital Bank, BitGo, Bakkt and Gemini – quickly insistedthey could make the gradeas custodians under the rule, industry lawyers are still analyzing the 434-page proposal. At the very least, its language throws suspicion on cryptocurrency players.

SEC CommissionerMark Uyeda arguedthat the rule proposal seemed to “mask a policy decision to block access to crypto,” and he suggested “it is unlikely that crypto assets can be maintained at qualified custodians or traded on crypto trading platforms in compliance with the proposed rule.”

Uyeda, who had worked in the past with congressional Republicans and as an adviser to conservative members of the commission, hadpreviously criticized “regulation by enforcement”more generally in a September speech, so – alongside the commission’s outspoken opponent of government overreach, Hester Peirce – there may be some internal resistance to the SEC’s campaign to shape crypto without writing a direct system of regulations.

“One significant shortcoming of regulation by enforcement is that it fails to provide a mechanism for the commission to consider the views by market participants, which can result in a myopic approach,” Uyeda said at a well-attended conference on SEC policy. “Market participants should be able to look to the commission’s rules rather than compare how their particular facts and circumstances may differ from those in a specific enforcement case.”

Many in the industry argue that relying piecemeal on laws based in the 1930s isn’t a way to establish clear rules of the road for the innovations that set crypto apart from the financial instruments of the past.

“The U.S. has to make a call to get in the game,” said Brett Quick, head of government affairs for the Crypto Council for Innovation. “It’s like we are just dipping our toe in the water when we need to dive in.”