SEC Commissioners' Clash about Cryptocurrencies
In recent speeches, two Securities and Exchange Commission (SEC) commissioners, Caroline Crenshaw and Hester Peirce took opposite stands during a central debate. The big question was, are all Cryptocurrencies securities?
Caroline Crenshaw’s View
Caroline Crenshaw maintained that she views Cryptocurrencies more like securities. She supported her argument by pointing out the agency’s history of enforcement actions going back to 2017.
Caroline Crenshaw disagreed with Hester Pierce’s proposal for a ‘safe harbor’ for new digital tokens. She invalidated the advantages of a safe harbor, pointing out the likelihood of the Initial Coin Offering (ICO) boom of 2017 and 2018 recurring.
Crenshaw alluded to how ICOs and other digital assets offerings obtained billions in investments but failed to fulfill their promises. She believes the loss of investments came from the failure to make comprehensive risk disclosures and establish fair markets by preventing manipulation, failure to register, and ICO era excesses.
On the other hand, Hester Peirce raised a question about the legal clarity and authorized readability of cryptocurrency and digital properties.
Caroline Crenshaw recapped her view that most digital assets currently operating outside of or in line with the SEC’s regulatory framework should have safe harbors until the regulator offers clarity.
Caroline Crenshaw rejected the proposal by Pierce, following Congressman Patrick McHenry's (NC-10) draft legislation that recommends a grace period of three years for cryptocurrencies.
Congressman McHenry stated that the US should be leading in cryptocurrency globally. Unfortunately, the existing regulatory framework could potentially propel this technology to other countries.
He appreciated the Clarity for Digital Tokens Act, stating that it’s a revolutionary step towards supporting technology and innovation to keep up with competitors.
Currently, Democrats, with President Gary Gensler in the lead, have control over SEC. He believes that cryptocurrencies and other digital assets are securities. Since most cryptocurrencies are not registered, they can trade and operate without disclosing their provider and important matrices that help buyers decide their value.
From an unbiased view, the opinions of Crenshaw and Gensler should be more valuable than Peirce’s opinion, given that he is a Republican. As long as there’s a Democrat in the White House, it’s likely that this scenario will remain unchanged.
A General View of Cryptocurrencies
The evolution of cryptocurrencies over the past ten years has been dynamic. Some governments and regulatory bodies now embrace cryptocurrency, with El Salvador becoming the first country to adopt Bitcoin as the national currency.
On the other hand, China banned trading and mining cryptocurrencies within the country and by its nationals.
In the US, harsh regulations inhibit the success of cryptocurrencies and digital assets. Enforcement actions by the SEC indicate that all cryptocurrencies are securities and must get regulated.
For instance, the SEC filed a federal lawsuit against Ripple Labs. The case indicated that Ripple raised $ 1.3 billion illegally through the sale of 14.6 billion units of XRP going back to 2013, while unregistered.
The result of this active case will shed some light on the cryptocurrency market. There’s hope that it will clarify what makes up digital assets in the view of the SEC.
Avid cryptocurrency supporters and initial buyers voice the need for clarity from the SEC on the digital assets that the company views as safe. According to Crenshaw, the likelihood of this happening is minimal.
Peirce demonstrated that in the absence of clarity from the SEC, marketers have no choice but to rely on the few court rulings available.
Crenshaw suggested that corporations offering digital assets and cryptocurrencies should evaluate their regulatory compliance and publicly share this information.
This process is complex, expensive, and gradual, discouraging most companies from interacting with the SEC before unveiling new digital assets. Despite these challenges, her view is that companies should have a legal obligation to do so.
The SEC clashes regarding cryptocurrency will most likely continue. The SEC chief, Gary Gensler, has avoided regulating cryptocurrency by eliminating it from the annual regulatory agenda.