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Crypto and the Challenge of Regulation

22 Oct 2025

I study the regulation of cryptocurrency and the urgent need for a coherent policy framework. Emerging technologies like cryptocurrency often defy traditional regulatory categories, and attempts to regulate them with without outdated laws frequently exceed statutory authority. With a multitude of competing stakeholders—entrepreneurs, financial incumbents, law enforcement, and consumers eager to use the technology—the US Congress has struggled to update the laws in a meaningful way.

George Stigler, the Nobel Prize–winning economist and leading figure in the Chicago School of Economics known for describing “regulatory capture”, observed in his 1963 “Public Regulation of the Securities Market” and later in the seminal “The Theory of Economic Regulation” that regulatory agencies often serve the interests of the industries they oversee rather than the public. Stigler critiqued the Securities and Exchange Commission (SEC), noting that its rules and enforcement frequently favored established players instead of protecting investors.

A striking example of regulatory capture in the crypto space was the SEC’s lawsuit against Ripple Labs Inc. over XRP, one of the largest and most widely used cryptocurrencies. In December 2020, the SEC filed a complaint alleging that Ripple had conducted an unregistered securities offering, claiming that XRP should have been registered under federal securities laws. XRP is a digital asset used for fast, low-cost cross-border payments and liquidity provision.

The lawsuit created enormous uncertainty for Ripple and the broader crypto market. Legal costs and regulatory pressure posed serious challenges to the company. After nearly three years of litigation, in July 2023, Ripple reached a settlement with the SEC that allowed it to continue operating XRP, with certain compliance measures. The case also saw intervention from XRP users—the so-called “XRP Army”—who filed a class action to assert their interest in accessing the technology, highlighting widespread public demand for blockchain innovation even amid regulatory scrutiny.

I own no cryptocurrency, but I study the industry as a textbook example of the perils of policy—both overreach and absence—and the consequences this has for innovation and consumer access.

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