Charles Hoskinson Questions US Government’s Criteria for Crypto Inclusion

Charles Hoskinson, founder of Cardano, has publicly challenged the objectivity and transparency of the U.S. government’s criteria for including cryptocurrencies within regulatory frameworks. His critique highlights ongoing concerns about how regulatory bodies like the Securities and Exchange Commission (SEC) determine which crypto assets fall under their jurisdiction, a debate with significant implications for market fairness and innovation.

What happened

In a recent interview with Decrypt, Charles Hoskinson voiced skepticism about the U.S. government’s approach to regulating cryptocurrencies, particularly questioning the clarity and impartiality of the criteria used to decide which digital assets are included in regulatory oversight. Hoskinson’s comments come amid a regulatory environment where the SEC primarily relies on the Howey Test—a legal framework used to determine whether an asset qualifies as a security—to evaluate cryptocurrencies. This test, however, was developed decades before the emergence of digital assets and is applied in a case-by-case manner, contributing to regulatory ambiguity.

Historically, the SEC has rejected multiple applications for Bitcoin exchange-traded funds (ETFs), citing concerns such as market manipulation and investor protection, though it has approved a limited number of Bitcoin futures ETFs. The agency’s decisions often reference factors like market surveillance, liquidity, and custody standards, but the precise thresholds or standards applied remain undisclosed publicly. Legal analyses, including a report by the law firm Perkins Coie, confirm that the SEC’s regulatory standards are evolving and lack a fully codified or objective framework, instead relying on discretionary assessments.

Similarly, the Financial Industry Regulatory Authority (FINRA) has issued guidance emphasizing investor protection in the cryptocurrency space but has not established a standardized or transparent inclusion framework. Industry commentary and expert analyses note that this opacity creates an uneven regulatory environment, potentially favoring larger incumbents who have the resources to navigate or influence regulatory outcomes.

Why this matters

The absence of clear, objective, and publicly available criteria for regulatory inclusion of cryptocurrencies has significant structural implications for the market. Without transparent standards, crypto projects and investors face heightened uncertainty about compliance requirements and regulatory treatment. This unpredictability can hamper innovation by discouraging new entrants or smaller players unable to absorb regulatory risks or costs.

Hoskinson’s critique underscores concerns that discretionary regulatory decision-making may lead to inconsistent outcomes, creating a competitive imbalance that favors established firms with greater regulatory expertise or lobbying capacity. At the same time, some regulatory experts argue that such flexibility is necessary to adapt to the rapidly evolving and complex nature of crypto assets, allowing regulators to respond to emerging risks.

This tension between flexibility and transparency affects not only individual market participants but also the broader policy discourse on how best to regulate digital assets. The regulatory approach taken by the SEC and other agencies influences investor confidence, the pace of technological development, and the overall legitimacy of the cryptocurrency ecosystem within traditional financial markets.

What remains unclear

Despite public statements and filings, the exact, quantifiable criteria the SEC uses internally to approve or reject cryptocurrency-related products remain undisclosed. Key questions include how the SEC balances concerns about market manipulation against the potential for innovation, and what specific thresholds or standards are applied regarding market surveillance, liquidity, and custody.

Furthermore, the extent to which political considerations, lobbying efforts, or other external influences affect regulatory inclusion decisions is not publicly known. The internal deliberations, risk assessments, and rationale behind regulatory outcomes are confidential, limiting transparency.

Additionally, it is unclear how forthcoming legislation, such as the proposed Digital Commodities Consumer Protection Act, might impact the transparency and objectivity of crypto regulatory criteria, or whether it will introduce more standardized frameworks.

Finally, while regulatory uncertainty is widely believed to affect innovation, there is a lack of empirical data or longitudinal studies quantifying this impact within the crypto sector.

What to watch next

The SEC’s upcoming decisions on pending cryptocurrency ETF applications, which may provide insight into evolving regulatory standards.
Any public disclosures or guidance from the SEC or FINRA that clarify or codify criteria for crypto asset inclusion in regulatory frameworks.
Legislative developments related to the Digital Commodities Consumer Protection Act and their potential to introduce clearer regulatory standards.
Statements or reports from legal experts and industry groups analyzing shifts in regulatory approaches or interpretations of the Howey Test as applied to crypto.
Market and industry responses to regulatory developments, particularly regarding how firms adapt to or challenge current inclusion criteria.

The debate over the objectivity and transparency of U.S. crypto regulatory criteria remains unresolved. While regulatory flexibility allows for adaptation in a rapidly changing market, the lack of clear standards raises questions about fairness, market stability, and the future trajectory of innovation in digital assets.

Source: https://decrypt.co/videos/interviews/ruszPswb/charles-hoskinson-critiques-us-government-on-crypto-objectivity. This article is based on verified research material available at the time of writing. Where information is limited or unavailable, this is stated explicitly.