Gary Gensler once described the Securities and Exchange
Commission’s (SEC) role in policing the “Wild West” crypto industry as a “cop
on the beat”.
Although anecdotal, what has since followed is a series of
high-profile civil lawsuits against some of the sector’s largest players. Yet,
a statement like this would only ring true if the SEC actually adhered to its
very own rule-driven standard.
It’s no secret that the SEC, which aims to bring
crypto under tighter government scrutiny as its primary overseer, is continuing
to drag its feet by refusing to tailor rules to clarify oversight of the
multi-trillion dollar crypto sector. But it isn’t just that the SEC has
declined to write new
regulations on how digital assets should be treated, the agency has instead
placed its focus, solely and lamentably, on enforcement actions that have
turned courts into “execution chambers” as academic J.W. Verret has remarked.
Gensler, who operates as
chairman of the SEC, has previously claimed that most digital assets are
“crypto asset securities” despite there being no crypto-specific regulations in place that stipulate this. All the while,
the SEC demands that crypto
companies comply with
still-evolving securities-law requirements.
Challenges Faced by Crypto Companies
In fact, the SEC has never
issued a single regulatory guideline pertaining to the registration
of digital assets. In
the barren land of crypto regulatory ambiguity, crypto companies like BlockFi get sued for failing to register
despite not knowing how to “come into compliance”
in the first instance.
Notably,
Gensler has publicly stated that Bitcoin (BTC) is not a
security, but he has hinted that Ethereum (ETH)
might be a security
and has repeatedly argued that hundreds of smaller tokens should fall under the SEC’s jurisdiction, which would
mean that the companies
who issue such cryptocurrencies would need to register with U.S governmental authorities.
Defining Crypto as Securities
In addition to refusing to
conduct the rulemaking needed to set stable crypto regulatory
standards, the SEC is
unwilling to formally define what makes a crypto a security outside of the explanations the agency
provides in its enforcement actions.
Granted, the SEC has stated
that it is in the process of forming cogent crypto policies, evidentin
proposals such as those
which seek to overhaul the definition of exchanges in order to
require that investment advisors use qualified custodians to park
their customers’
crypto. However, if the SEC spent as much time clarifying crypto-specific rules (as many
in the industry have
urged it to do so) as it does suing crypto companies in court, we might have more answers.
But crypto regulatory
rulemaking isn’t the SEC’s priority, nor is providing the clear answers
that would ease the legal
quagmire that many crypto
companies remain in.
Balancing Enforcement and Guidance
Gensler’s view is that
existing securities laws are sufficiently clear because SEC measures
already apply to crypto — a
convenient but misguided argument that negates the necessity of new rules. What’s more, Gensler (who even
once taught an MIT
blockchain lecture course
and has historically flip-flopped on his views) has said that while misconduct is
rampant in the crypto
sector, crypto only accounts for a small portion of the U.S capital markets.
If indeed crypto is too small
of an industry to exist on the SEC’s direct radar, why has this
ostensibly inconsequential
sector garnered so much of the agency’s attention, leading to controversial billion-dollar penalties for crypto
companies like Ripple? How does pursuing a punitive campaign against crypto
assist in the issuing
of clear guidance on core issues that impact the industry?
Global Trends in Crypto Regulation
Hundreds of millions of
people worldwide use crypto for various purposes and believe in its
potential. The SEC’s inability to see how crypto is inevitably a part of our
future means that
on a federal regulatory
level, the US could lag behind the rest of the world. The EU, UK, United Arab
Emirates, Japan, Singapore and even China have introduced or are in the process
of introducing permanent
regulatory frameworks for crypto — take note SEC. U.S policymakers should consider running a sandbox too, just like the UK has done.
I often find myself thinking
of the age-old dating question: “Where do we go from here?”. No,
but really. How can
the crypto industry continue to move forward without a clear regulatory path ahead? The stakes
are too high, especially as crypto has become increasingly woven into the global financial system. “Investor
protection and enhancing public trust in our markets requires that we work with
a sense of urgency”, SEC enforcement division director Gurbir Grewal once remarked. I just wish that sense of urgency would
be applied to the
formation of much-needed crypto regulatory guidelines.
Gary Gensler once described the Securities and Exchange
Commission’s (SEC) role in policing the “Wild West” crypto industry as a “cop
on the beat”.
Although anecdotal, what has since followed is a series of
high-profile civil lawsuits against some of the sector’s largest players. Yet,
a statement like this would only ring true if the SEC actually adhered to its
very own rule-driven standard.
It’s no secret that the SEC, which aims to bring
crypto under tighter government scrutiny as its primary overseer, is continuing
to drag its feet by refusing to tailor rules to clarify oversight of the
multi-trillion dollar crypto sector. But it isn’t just that the SEC has
declined to write new
regulations on how digital assets should be treated, the agency has instead
placed its focus, solely and lamentably, on enforcement actions that have
turned courts into “execution chambers” as academic J.W. Verret has remarked.
Gensler, who operates as
chairman of the SEC, has previously claimed that most digital assets are
“crypto asset securities” despite there being no crypto-specific regulations in place that stipulate this. All the while,
the SEC demands that crypto
companies comply with
still-evolving securities-law requirements.
Challenges Faced by Crypto Companies
In fact, the SEC has never
issued a single regulatory guideline pertaining to the registration
of digital assets. In
the barren land of crypto regulatory ambiguity, crypto companies like BlockFi get sued for failing to register
despite not knowing how to “come into compliance”
in the first instance.
Notably,
Gensler has publicly stated that Bitcoin (BTC) is not a
security, but he has hinted that Ethereum (ETH)
might be a security
and has repeatedly argued that hundreds of smaller tokens should fall under the SEC’s jurisdiction, which would
mean that the companies
who issue such cryptocurrencies would need to register with U.S governmental authorities.
Defining Crypto as Securities
In addition to refusing to
conduct the rulemaking needed to set stable crypto regulatory
standards, the SEC is
unwilling to formally define what makes a crypto a security outside of the explanations the agency
provides in its enforcement actions.
Granted, the SEC has stated
that it is in the process of forming cogent crypto policies, evidentin
proposals such as those
which seek to overhaul the definition of exchanges in order to
require that investment advisors use qualified custodians to park
their customers’
crypto. However, if the SEC spent as much time clarifying crypto-specific rules (as many
in the industry have
urged it to do so) as it does suing crypto companies in court, we might have more answers.
But crypto regulatory
rulemaking isn’t the SEC’s priority, nor is providing the clear answers
that would ease the legal
quagmire that many crypto
companies remain in.
Balancing Enforcement and Guidance
Gensler’s view is that
existing securities laws are sufficiently clear because SEC measures
already apply to crypto — a
convenient but misguided argument that negates the necessity of new rules. What’s more, Gensler (who even
once taught an MIT
blockchain lecture course
and has historically flip-flopped on his views) has said that while misconduct is
rampant in the crypto
sector, crypto only accounts for a small portion of the U.S capital markets.
If indeed crypto is too small
of an industry to exist on the SEC’s direct radar, why has this
ostensibly inconsequential
sector garnered so much of the agency’s attention, leading to controversial billion-dollar penalties for crypto
companies like Ripple? How does pursuing a punitive campaign against crypto
assist in the issuing
of clear guidance on core issues that impact the industry?
Global Trends in Crypto Regulation
Hundreds of millions of
people worldwide use crypto for various purposes and believe in its
potential. The SEC’s inability to see how crypto is inevitably a part of our
future means that
on a federal regulatory
level, the US could lag behind the rest of the world. The EU, UK, United Arab
Emirates, Japan, Singapore and even China have introduced or are in the process
of introducing permanent
regulatory frameworks for crypto — take note SEC. U.S policymakers should consider running a sandbox too, just like the UK has done.
I often find myself thinking
of the age-old dating question: “Where do we go from here?”. No,
but really. How can
the crypto industry continue to move forward without a clear regulatory path ahead? The stakes
are too high, especially as crypto has become increasingly woven into the global financial system. “Investor
protection and enhancing public trust in our markets requires that we work with
a sense of urgency”, SEC enforcement division director Gurbir Grewal once remarked. I just wish that sense of urgency would
be applied to the
formation of much-needed crypto regulatory guidelines.
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