Since that time, the SEC staff and some commissioners have acknowledged that Bitcoin itself is not a security, and in 2018 a senior SEC official suggested that “current offers and sales of Ether are not securities transactions.”īut other than Bitcoin and Ether, the SEC has never identified a digital asset that it believes is not a security, and current SEC Chair Gary Gensler, like former Chair Jay Clayton before him, have suggested that most digital assets are, actually, securities. Starting in the early 2010s, the SEC began to take note of the small but growing digital asset market, which though dominated by activity involving Bitcoin began to feature capital raising through “ICOs” or “initial coin offerings.” In 2017 the SEC released an investigative report in which it explained how some ICOs could amount to illegal unregistered securities offerings. Since the 1930s, the SEC has been the indispensable leader of the regulatory effort, at home and abroad, and the world’s financial markets are without a doubt fairer and more economically efficient today because of the SEC’s expertise, zeal and effectiveness over the last nine decades and counting. Our present-day securities market infrastructure is the product of generations of trial-and-error by market participants and regulators to facilitate the critical economic engine of capital formation while safeguarding the interests of those who provide the capital – also known as investors. In addition to securities exchanges, brokers and dealers, these actors include intermediaries such as clearing organizations and transfer agents, and specialized service providers such as underwriters, investment advisers and custodians. Instead, our securities markets operate within an infrastructure of actors with defined roles and responsibilities who are comprehensively supervised by multiple federal, state and industry regulatory authorities. So-called “secondary market” securities trading just doesn’t happen this way. If a digital asset is a security, then it cannot be bought and sold on popular crypto trading platforms, which aren’t subject to SEC oversight as securities exchanges or operated by SEC-registered broker-dealers as alternative trading systems.īut more importantly, the digital asset probably cannot be used for its intended non-investment purpose – at least where its use requires that it freely move on a peer-to-peer basis over a decentralized network of computer servers. Is it a security?Ī fundamental question that looms over many digital asset activities is whether or not the particular digital asset in question is a security under U.S. Instead, for many if not most digital assets, the question of whether the SEC can and will assert authority would too often remain a guessing game. This is not a recipe for predictability.īecause neither bill tackles head-on the thorny question of how to distinguish digital assets that are securities from those that are not, neither bill, if enacted in its current form, would settle the brewing turf war between the two powerful agencies. Instead, when analyzing a particular digital asset, the SEC suggests that market participants should consider a non-exclusive list of 50 or 60 “characteristics,” none of which is “necessarily determinative,” on the understanding that when their “presence” is “stronger” it is “more likely” that the digital asset is an “investment contract” and thus a security. However, both bills seem to perpetuate reliance on the decades-old Howey test in order to determine whether a particular digital asset is a security, and thus subject to SEC jurisdiction.Īs one can gather from even a quick read of the SEC’s 2019 analytical framework for applying Howey to digital assets, the Howey test simply does not foster reproducible results that market participants can rely on with reasonable confidence. In June, Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) unveiled the Lummis-Gillibrand Responsible Financial Innovation Act, and in August, Senators Debbie Stabenow (D-MI) and John Boozman (R-AR) announced they would introduce the Digital Commodities Consumer Protection Act of 2022, with support from Senators John Thune (R-SD) and Cory Booker (D-NJ).Įach bill would bring much needed clarity to the regulatory landscape in part by strengthening the role of the Commodity Futures Trading Commission instead of fully empowering the Securities and Exchange Commission to regulate the digital asset industry. digital asset industry were introduced in the Senate with solid bipartisan backing. In the last few weeks, two bills with the potential to bring needed regulatory certainty to the U.S.
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