SEC Chairman Gary Gensler is trying to protect someone, but it’s not American investors.

Even the staunchest cryptocurrency supporters can see why the SEC might target the cryptocurrency industry for some enforcement action. Events over the past year — from the collapse of Three Arrows Capital to the fraud at FTX — are bound to draw some scrutiny from an industry that has a history of being overly enthusiastic about blatant touts.

But a recent string of enforcement actions by the SEC and U.S. agencies don’t meet the protection standard. Instead, a closer look at everything from the banking crackdown earlier this year to the endless stream of enforcement regulation strikes a different chord. The U.S. government appears to be taking action to protect the financial services industry from disruption.

One piece of evidence of this phenomenon is the SEC’s massive lawsuit against Coinbase — a company long considered one of the “good guys” in the crypto space. Its client list includes large asset managers, Fortune 100 companies, and the U.S. government itself, none of which have ever complained about the integrity of its services. Unlike FTX, Coinbase has never defrauded its customers. It is not based in an offshore tax haven and has never been hacked. In fact, the company has repeatedly stated its intention to be regulated, even suing the SEC to force it to provide a roadmap for how to do so.

Its reward? A 100-page lawsuit full of contradictions, like some first-layer tokens are securities and others are not. Imagine a town that refuses to tell you what the speed limit is but routinely issues speeding tickets. No one would take such a place seriously. We still don’t know if Ether is a security.

Ethereum

New technologies often clash with old rules, and regulators may initially have a hard time understanding startups because they don’t understand the technology. Gensler doesn’t have that excuse. He’s a guest lecturer at MIT’s Digital Currency Initiative and teaches a widely respected blockchain course. So how did he go from that level of knowledge and conviction to arguing on CNBC that we don’t need cryptocurrency?

Gensler is protecting someone, but it’s certainly not U.S. investors who will ultimately leave any service provider untouched. The same cannot be said for crypto companies relocating to friendlier jurisdictions. It’s the old guard on Wall Street that crypto threatens. It’s hard to look back at the increasingly shaky approach to regulation and come to any other conclusion. To wit:

• The United States is one of the few major countries without a bitcoin exchange-traded fund (ETF). Several companies have tried to issue a cryptocurrency, but the SEC has refused to approve any, arguing that cryptocurrency markets are unregulated. It’s a strange defense, since the agency has approved futures-backed ETFs that buy derivatives tied to those markets, which are bound to underperform due to the added friction. But they do keep incumbents like the CME and its associated brokers relevant.

• The SEC has designated stablecoins as securities, a ruling that stifles their utility as a payment product. Stablecoins shouldn’t be controversial. They use a familiar model, extend the reach of the dollar, and create additional demand for U.S. Treasuries. The only entities they disadvantage are the traditional banks and centralized payment providers that dominate the industry.

• The agency believes that public companies that hold cryptocurrencies for others should treat them as liabilities on their balance sheets and set aside additional reserves. This approach does not apply to other assets, making cryptocurrency custody services inaccessible to all but the largest custodians.

• Cryptocurrencies offer startups and decentralized projects a novel way to raise funds from potential customers and users, thereby reducing financing costs and expanding financial inclusion. But the SEC has repeatedly insisted on expensive registration, forcing cryptocurrencies back to a fundraising system dominated by investment banks.

• Trying to shoehorn digital assets into an existing regulatory framework designed for stocks and bonds limits their utility, but is a boon for Wall Street incumbents that already have the necessary licenses, which are virtually impossible for startups to obtain. The only exception? The highly suspicious Prometheum Capital’s acquisition of a useless license proves this.

• A recent ruling on what kind of service provider can be considered a “qualified custodian” appears designed to strip state financial authorities of the ability to grant charters to smaller players who tend to be crypto natives.

• After filing a civil lawsuit against Binance, the world’s largest cryptocurrency exchange, the U.S. Securities and Exchange Commission is trying to take the additional step of requiring the government to freeze all assets of its domestic entities, effectively shutting them down.

• The Coinbase lawsuit argues that providing software to people who want to store their own crypto assets should be limited to registered broker-dealers. If upheld, this rule would effectively kill the killer app of cryptocurrency self-custody, forcing all investors back into the arms of intermediaries.

It’s the dirty secret of every highly regulated industry that strict rules can create strong moats for incumbents. Large companies may complain publicly about the costs of compliance, but privately appreciate the competitive advantages of being on the other side of the regulatory divide. This is one reason why highly regulated industries such as finance or healthcare rarely see turnover at the top.

Protecting the status quo is also the only plausible explanation for the SEC’s opposition to Congress passing legislation to address the problem. Gensler has repeatedly said that securities laws passed in the 1930s and the Howey test (a Supreme Court ruling before the invention of the transistor) provide all the clarity his agency needs to regulate cryptocurrencies. Other countries around the world have not taken this approach, perhaps because their traditional service providers are not as prominent as in the United States.

It is worth noting that some domestic regulators disagree with this approach, including other commissioners of the U.S. Securities and Exchange Commission.

Five years ago, speaking at an MIT blockchain event, Gensler said that “blockchain technology” had “real potential to transform the financial world.” He added, “It could reduce costs, risks, and economic rents in the financial system.”

The technology hasn’t changed in that time, but Gensler has. To be fair, whose interests is he protecting?