The SEC’s Crypto regulation by enforcement
The United States Securities and Exchange Commission (SEC)
has come under fire from the crypto industry for its approach to digital asset regulation,
which many have criticized as being too focused on enforcement actions
rather than formal rulemaking or waiting for Congress to pass legislation clarifying
when securities laws apply to cryptocurrencies.
Topics
Unyielding Commitment
Which digital coins can be regulated as securities?
Assessing the SEC’s Crypto Regulatory Power
Unyielding Commitment
The most recent example is Ishan Wahi, a former Coinbase Global Inc manager
who was accused of insider trading by both the US Justice Department and the SEC last year,
and who this week moved to dismiss the SEC’s complaint against him,
arguing, among other things, that he had no idea at the time that the Ethereum-based tokens
he traded would be classified as securities by regulators, as in this case under US Securities Law.
Despite pleading guilty in his criminal case yesterday,
Wahi maintains that the tokens were not securities, at least according to his understanding.
This action illustrates how much ambiguity exists in cryptocurrency markets
about what constitutes security, especially given their decentralized character,
global availability, and lack of clear regulatory advice on what activities are permitted or forbidden.
It also calls into question whether an enforcement action like this one can set policy
without more comprehensive regulations being put into place first through
either formal rulemaking processes or Congressional legislation.
Overall, it appears there is still much work needed before we can have clarity around
how US Securities Laws should be applied
specifically toward digital assets such as cryptocurrencies
something which will likely require coordination between multiple different
agencies across government levels if done properly.
Which digital coins can be regulated as securities?
The SEC’s refusal to provide clear guidance on which digital coins
can be regulated as securities has left crypto investors in a state of uncertainty.
The lack of clarity from the commission has been highlighted in recent court filings
surrounding the case involving Coinbase, a leading cryptocurrency exchange.
In this case, Coinbase expressly stated that the tokens Wahi
and his brother traded were not securities,
but Congress had yet to definitively tell crypto investors
which digital coins could be subject to SEC enforcement actions.
Without clear rules or regulations from Congress or other governing bodies,
it is difficult for those trading cryptocurrencies like Ether and Bitcoin
to know their exposure when it comes to potential risks associated with such investments.
This is why Wahi argued that without more definitive guidance from regulators
like the SEC regarding what constitutes a security under U.S. law, crypto users are essentially “left guessing”
about their legal status when investing in these assets.
This situation cannot continue indefinitely if we want an efficient market
where people feel comfortable trading virtual currencies
knowing they will not face any unexpected regulatory issues down the line
due to its unclear nature at present time. To ensure investor confidence
and create greater transparency within this space,
there need clearer guidelines set by authorities
so everyone involved knows exactly how each asset
should be classified according to certain criteria.
Until then, many individuals may remain hesitant
about entering cryptocurrency markets given all these uncertainties.
Assessing the SEC’s Crypto Regulatory Power
As the crypto industry continues to grow, regulators are tasked
with ensuring that these new technologies
and their associated markets remain compliant with existing laws.
Whether XRP tokens issued by Ripple constitute securities under federal law;
if they do then they must comply with all applicable regulations governing such investments
including registration requirements, which would open both Ripple itself
and its executives to potential civil liability for failing to register them properly
before offering them for sale publicly over exchanges like Coinbase Pro since 2013.
Both sides have filed dueling motions seeking summary judgment ahead of trial,
so it appears likely that Judge Torres will decide sooner rather than later
as each side makes their respective cases before her court.
If Judge Torres finds against Ripple Labs Inc., it could set an important precedent regarding
how cryptocurrency assets should be regulated going forward within the United States,
potentially resulting in more stringent compliance measures across many other projects operating
within our borders regardless of where those projects originated from originally.
This could also mean additional scrutiny from government agencies like FinCEN
when it comes time for companies dealing heavily in digital assets such as Bitcoin or Ethereum,
two cryptocurrencies exempt from SEC jurisdiction due largely
because there’s no single entity controlling either asset’s supply chain
to seek approval for money services businesses (MSBs) licenses required by law
when engaging in certain types of transactions
involving fiat currency conversion into crypto assets or vice versa.
Whatever happens, one thing is certain: the outcome of Judge Torre’s ruling
will undoubtedly shape future regulation surrounding cryptocurrency investment opportunities
in the United States long after a resolution is reached between the parties
involved in the current dispute brought forth by the United States District Court for the Southern District of New York.
