The high cost of deregulation

Why defunding the SEC amid crypto expansion is a risky gamble for taxpayers

As cryptocurrency continues to gain traction in mainstream finance, some policymakers are pushing to defund the Securities and Exchange Commission (SEC) — the very agency tasked with protecting investors and maintaining market integrity.

While the allure of decentralized finance and digital innovation is undeniable, removing regulatory oversight at such a critical juncture could be both dangerous and costly for American taxpayers.

The SEC is the watchdog of U.S. capital markets. It enforces transparency, investigates fraud and ensures that companies provide accurate financial disclosures.

Without it:

• Investor protections weaken, making it easier for bad actors to exploit retail investors.
• Market manipulation risks rise, especially in volatile sectors like crypto.
• Audit oversight collapses, as seen in proposals to eliminate the PCAOB (Public Company Accounting Oversight Board) and fold its functions into the SEC — moves that already threaten audit quality.

Cryptocurrencies can introduce unique challenges:

• Extreme price swings can destabilize markets and erode both investor and consumer confidence.
• Cybersecurity threats and scams are rampant, with billions lost to fraud annually.
• Lack of intrinsic value and speculative trading make crypto assets vulnerable to bubbles.
• Interconnectedness with traditional finance means crypto crashes can ripple through banks, retirement plans and payment systems.

Defunding the SEC while expanding crypto’s footprint could shift the financial fallout onto taxpayers:

• Bailouts and emergency interventions may be needed if crypto-induced instability triggers broader financial crises like the 2008 meltdown.
• Loss of investor trust could shrink capital markets, reducing tax revenue from investments and corporate growth.
• Regulatory gaps would force other agencies to scramble for oversight, increasing administrative costs and inefficiencies.

The collapse of Enron and WorldCom in the early 2000s and the Great Recession of 2008-09 exposed the dangers of weak oversight. Scandals wiped out billions in retirement savings and led to the creation of the PCAOB (pcaobus.org) to enforce audit standards. Today, similar deregulatory moves threaten to repeat history — this time with crypto as the catalyst.

Rather than gutting the SEC and Dodd Frank, policymakers should:

• Strengthen crypto regulations to ensure transparency and consumer protection.
• Fund oversight agencies adequately to keep pace with financial innovation.
• Engage the public in shaping crypto policy, ensuring that reforms serve everyday Americans, not just industry insiders.
• Consider breaking up the larger banks to avoid placing the burden on taxpayers for future failures.

Tom Sedoric is executive managing director and wealth manager at Steward Partners in Portsmouth, New Hampshire. A Wisconsin native, he loves being on the water, knows some amazing card tricks and can fix just about anything. Check out Tom’s previous articles at humbledollar.com/author/tom-sedoric.