Crypto-Asset Markets and SEC Enforcement Actions

Abstract

The rise of crypto-asset markets is of significant concern to governments and regulators all over the world. Over the past decade, the US Securities and Exchange Commission, in particular, has invested substantial time and resources towards regulating crypto activities by bringing numerous enforcement actions. This study provides some of the first evidence about how SEC enforcement actions influence crypto-asset market activity. We find that aggregate crypto-market prices decline following the announcement of SEC enforcement actions. Further, we find that this response is more pronounced for crypto tokens with lower market values and when enforcement actions include higher monetary penalties or relate to defrauding investors. We further utilize a novel measure of financial innovation on the supply side – the number of new crypto projects created on the Ethereum blockchain and find that SEC enforcement is associated with a decrease in new crypto projects. Our results provide important evidence that helps inform the important debate about the impact of regulation in crypto-asset markets.