1. What does the SEC do?
Its president, Gary Gensler, and his predecessor to Trump, Jay Clayton, have said that many numérique assets have the attributes of securities. Gensler spent the past year feu de détresse that the agency was calepin to take a hard line in applying its rules to those symbols. Concern lilas among cryptocurrency traders when the market regulator took the unusual step in late July of identifying nine crypto assets it deemed securities as bout of an insider trading case. Seven of them were traded on Coinbase, the largest cryptocurrency exchange in the United States. Separately, Bloomberg Infos reports that Coinbase is facing an enquête by the Securities and Exchange Crédit over whether it listed trading assets that should have been registered with the agency.
2. What does it mean for something to be security?
In its simplest form, whether or not something is a security under US rules is basically a peine of how well it looks like réserve issued by a fundraising company. To make this decision, the SEC applies a statutory modèle, which comes from a 1946 Supreme Laconique decision. Under this framework, an asset can be within the SEC’s jurisdiction when it involves investors kicking money with the intent to benefit from the organization’s leadership efforts. In December 2020, the agency filed a lawsuit against Ripple Labs Inc. , claiming to raise funds by selling the numérique XRP token, which at the time was the third largest token, without registering it as collateral. The Securities and Exchange Crédit alleged that the company was financing its growth by issuing XRP to investors who bet that its value would rise. The case is now a huge legal battle with Ripple after it appointed façonner Securities and Exchange Crédit chairwoman Mary Jo White as an attorney.
3. Why is calling a token a security péroraison?
For starters, such appointments would make operating a cryptocurrency exchange more expensive and complicated. Under US rules, the poinçon carries austère investor caparaçon requirements for platforms and issuers. This burden would put smaller platforms at a disadvantage compared to richer competitors. Moreover, exchanges will figure impérissable scrutiny by regulators, which could lead to fines, penalties, and, in the worst cases, prosecutions if criminal authorities intervene. It could also mean a loss of future funding from investors who may be fickle from the growing burden of compliance and regulatory scrutiny. Supporters of more regulation believe that securities appointments will lead to more interrogation and transparency for investors parce que of the Securities and Exchange Crédit’s disclosure requirements that will apply.
4. Who is against this approach?
Crypto enthusiasts say their projects are decentralized in such a way that the old rules are not appropriate, and crypto exchanges argue that the assets they list should be considered commodities, not securities. In the United States, the rules governing the trading of commodities and their derivatives foyer more on ensuring that companies, producers, and farmers can use derivatives effectively to hedge price risks in commodities than on the role of small investors.
5. What does the crypto community want?
There have been efforts on Capitol Hill to give the Commodity Futures Trading Crédit, the US Derivatives watchdog, more authority to directly regulate crypto assets. It currently mainly oversees cryptocurrency futures contracts and has the ability to take enforcement instruction if there is fraud or attraction in the underlying market, as is the case in dozens of crypto cases. Cryptocurrency executives and traditional market giants like Citadel Securities have joined an industry campaign behind a bill from top lawmakers in the Senate Connaissance Committee that would give the derivatives regulator more leverage — at the expense of the SEC. Opponents of this approach say that the SEC’s rules focused on securities provide more caparaçon for small and medium-sized investors.
6. How do agencies split cryptocurrencies?
To some extent, their approaches reflect their origins. The Securities and Exchange Crédit was formed in the wake of the market écrasement of 1929 and sees its primary activité as protecting investors by requiring large disclosures by financial entities. The CFTC traces its roots back to the Department of Connaissance and helps farmers protect against drought. The CFTC – and US rules on commodities and their derivatives – are widely seen as a less onerous regulatory regime. So it comes as no ébahissement that the crypto écoute desperately wants the CFTC to be the regulator, not the Securities and Exchange Crédit.
7. What currencies are or are not considered a security?
The flottant answer is that other than the largest cryptocurrency, there is a lot of mystery. US regulators, including the Securities and Exchange Crédit, agree that bitcoin, by far the largest numérique asset, is not a security. It was started by an unknown person or people with the autrement Satoshi Nakamoto and does not exist as a way to raise funds for a specific project. The annexe largest token, Ether, was deemed not a security during the Trump tendance by a senior SEC official, who noted that while Ether may have started to qualify as collateral — the Ethereum Foundation used it to raise funds — it has grown into something no Orthogonal enough that it may no border be. But after Ethereum changed to a system where “stack” coins play a role in recording transactions, Gensler said the fact that stacked coins can earn interest could agile regulators to start treating them as collateral. The CFTC considers Ether a commodity, and the Chicago Cupide Exchange lists futures contracts on it as well as Bitcoin.
Gensler said the agency could waive some of its rules to better suit numérique assets, while ensuring investor caparaçon, if exchanges work with the agency to sign up. However, he did not provide a roadmap for exactly how to achieve this. Meanwhile, lawmakers are considering several proposals that could give the CFTC and US banking regulators more power over parts of the asset class. At the same time, the SEC’s insider trading case, if it comes to enduro, could lead to a clearer picture of what hommes of tokens are securities and which should be considered commodities. In September, the White House released a series of reports submitted by various agencies, saying that together they constituted the first “comprehensive framework for the responsible development of numérique assets.” But the reports did not resolve what was a pot-pourri of overlapping approaches and judicial battles.
9. Is this a problem elsewhere?
yes. Globally, various regulators have taken a range of positions on whether cryptocurrencies should be treated as securities. The UK’s Financial Conduct Agency regulates numérique assets that are investments that come with payment rights or a share of butins, while “payment tokens” such as Bitcoin or “utility tokens” that provide access to the bonté are not regulated. Singapore regulates both hommes but under different laws. They consider currencies that are numérique representations of other assets, such as unlisted stocks, as securities. In June, the European Fusion reached an interim agreement to obligatoire common cryptocurrency rules in all 27 member states, and to establish a new legal framework to regulate allocutaire offerings of cryptocurrency blocks.
• Attentisme of the Treasury Department on issues related to the regulation of cryptocurrencies.
• A genre at the cryptocurrency industry’s push in Washington to avoid securities regulation.
• Gary Gensler’s first entrevue on cryptocurrency after taking over as SEC President with Bloomberg Businessweek.
• Congress considers BGOV OnPoint cryptocurrency legislation.
• Bloomberg’s QuickTake transfert from 2018 shows how mince these battles have lasted.
• Executive Order on Cryptographic Regulation signed by Biden.
• Étude on the Securities and Exchange Crédit’s struggle with Ripple.
• UK FCA breakdown of tokens opposé à unregulated tokens.
More stories like this are available at bloomberg.com