- SEC Chair warns blockchain transparency could enable constant financial tracking
- Overregulation may turn crypto wallets and protocols into surveillance tools
- Privacy tech like zero-knowledge proofs could protect users while meeting rules
The head of the U.S. Securities and Exchange Commission has warned that cryptocurrency could become a powerful tool for financial surveillance if regulators do not place clear limits on how blockchain data is used.
Speaking Monday at the SEC Crypto Task Force’s sixth public roundtable, the SEC Chair said blockchain systems make it easier to trace transactions back to individuals. While that transparency can support market integrity and law enforcement, he said it also creates risks that do not exist in traditional finance.
He cautioned that aggressive regulatory treatment could push crypto in the wrong direction. If every wallet is treated as a broker and every transaction as a reportable event, he said, the technology could evolve into a system of constant monitoring.
Blockchain Transparency Raises New Privacy Risks
Public blockchains store transaction data on open ledgers that anyone can view. According to the SEC Chair, this structure allows faster verification and stronger oversight than legacy financial systems, where records are scattered across private institutions.
At the same time, he warned that blockchain transparency is uniquely durable. Transactions are permanent and can be analyzed years later using new tools. When combined with analytics software, even lawful activity can be tracked across time and linked to real people.
SEC Chair Flags Crypto Risk of Financial Surveillance (Source: X)
Therefore, the SEC Chair said that treating all blockchain activity as suspect could undermine personal privacy. Unlike banks, which limit access to customer data, public ledgers expose activity by default. Expanded reporting rules could magnify that exposure.
Past Oversight Models Offer Cautionary Lessons
To illustrate the risk, the SEC Chair pointed to the Consolidated Audit Trail, a system built to help regulators monitor U.S. stock and options markets. While originally designed to improve enforcement, the database grew into a large repository of sensitive investor data.
Over time, concerns emerged around cost, cybersecurity, and the scale of information collected. The SEC Chair said the system shows how oversight tools can expand beyond their original purpose.
He warned that applying similar models to crypto could produce even broader surveillance. Blockchain data is already public and permanent. Additional regulatory layers could allow real-time tracking of financial behavior on a wide scale.
Technology Offers Privacy-Preserving Options
Despite the risks, the SEC Chair said privacy and compliance do not have to conflict. He pointed to developments such as zero-knowledge proofs, which allow users to confirm regulatory compliance without revealing full transaction histories.
These tools, he said, could support targeted enforcement while limiting unnecessary exposure of personal data. He added that policy should focus on outcomes rather than blanket data collection.
The comments reflect a broader shift in regulatory tone since the SEC Chair took office in April 2025. He has called for clearer rules and less reliance on enforcement actions to define crypto policy.
Notably, in November 2025, he introduced Project Crypto, an initiative aimed at updating securities rules for digital assets. The effort focuses on clearer classifications and predictable frameworks for trading, custody, and tokenization.
Market Structure Debate Continues
The remarks come as Congress considers broader changes to digital asset regulation. The House passed the CLARITY Act in July, a bill that could expand the Commodity Futures Trading Commission’s role in crypto markets and narrow the SEC’s authority.
Besides, Senate negotiations are ongoing, but lawmakers face time pressure before 2026. As of this week, a vote before year-end appears unlikely.
As the debate continues, the SEC Chair said regulatory choices made now will shape how blockchain technology is used for decades. Without firm safeguards, he warned, crypto could lose its promise as an open financial system and instead become a tool for routine surveillance.
