Is the SEC Crypto’s Wettest Blanket?
Even as large corporations file blockchain patent applications, merge and acquire, make newsworthy hires, expand into new markets, and launch crypto-derivative trading products, the SEC’s insistence on muddying the waters of the burgoening market is having a destructive influence on cryptocurrencies and token-funded startups. Cryptocurrencies have many vocal doomsayers, but is the SEC crypto’s wettest blanket, smothering the flames of promise that burned at the end of 2017?
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Clayton’s Law and the SEC Regulations That Aren’t
In his Wednesday interview with CNBC, SEC chairman Jay Clayton doubled down on the commission’s stance that bitcoin was not a security, but tokens created for the purpose of raising money for an enterprise were securities, (and therefore subject to SEC regulation). As reported by Bitsonline, Clayton refused to be drawn into a declaration of the status of Ripple or Ether.
The commission seems prepared only to make broad statements without offering examples of which crypto-assets fall on either side of the securities vs cryptocurrency line. Tokens intended to replace money are not securities. Tokens designed to raise funds for startups are securities. The obvious problem is that many cryptocurrencies start as “securities”, and most of those fundraising tokens do end up becoming potential replacements for money.
The commission is dancing with the twin devils of regulatory failure and institutionalized incompetence. The 2018 calendar year has seen the cryptocurrency industry punctured by a series of attacks from well-known figures. Yet the SEC’s wordcraft and apparent preference for games of gotcha are a more menacing threat.
Munger and His Hunger, Roubini and Houdini, Buffett and Gates
Cryptocurrencies have fared appallingly over the past few weeks in terms of both price and sentiment. After tickling and threatening to breach $10,000 USD on a few occasions this year, bitcoin has yet again fallen below $8,000 at press time, and is dragging the entire digital asset market down with it. The capitalisation of all coinmarketcap-listed coins has declined roughly $100 billion since re-breaching $450 billion in early May.
Nouriel Roubini lambasted cryptocurrencies at the Fluidity Summit in New York, arguing tokenization threatened to take the U.S. back to the Stone Age. The highly respected economist would clearly be glad to see cryptocurrencies disappear.
Warren Buffett has long derided digital assets – or at least bitcoin, the one he knows about – recently referring to it as “probably rat poison squared”. Bill Gates suggested he’d short bitcoin if it were possible… except that courtesy of CBOE bitcoin futures contracts it is actually possible.
And Charlie Munger, Buffett’s storied Berkshire Hathaway sidekick in bitcoin-bashing, revealed a hunger for trash talking with his sure-to-become infamous “harvested baby brains” quote during a Yahoo Finance interview.
Yet these are increasingly marginal perspectives. Goldman Sachs, JPMorgan Chase & Co, and the Rockefellers are drifting toward cryptocurrencies, despite what they might admit publicly. George Soros is dabbling. What is actually dousing the flames of cryptocurrency enthusiasm is the SEC’s toxic mixture of indecision and adversarialism.
Could the SEC Just Let Me Be? Asks John McAfee
John McAfee tweeted that he had gone “underground” on May 15th, claiming the U.S. Securities and Exchange Commission was “striking back (to his criticisms of them) with subpoenas”.
I am underground. This story by Rob Loggia explains all. I am the most vocal and angry opponent of the SEC. They are striking back with subpoenas. If I am silenced, it is the movement that suffers. I cannot allow this. My team will be my voice. Stay safe.https://t.co/joVrBlnMi8
— John McAfee (@officialmcafee) May 15, 2018
McAfee claims the SEC has accused him of “impeding an ongoing SEC investigation by unlawfully disclosing information that could benefit the subjects of such investigation”. Whichever way the merits of the potential charges against him and the possibility he has engaged in another bizarre publicity stunt sway, a source close to McAfee has revealed that his claims about cars with mismatched license plate numbers from other states circling his house are true.
Ripple Crippled, Coinbase Scrambles, and Americans Forced to Dance Around the SEC’s Uncertain Stance
Bitsonline has previously criticised the SEC for failing to provide the marketplace with certainty as to which way it might be inclined to fall when it comes to determining the legal status of cryptocurrencies. The commission has delineated between utility tokens and securities only insofar as its position seems to be that some coins are tokens (with utility) and others securities.
This has left many wondering about the fate of ether, for example, as by SEC logic ethers are securities. The commission has in fact deemed The DAO tokens to have been securities, choosing, though, not to take retrospective action. The market knows the SEC sees a difference. But it is not yet clear what that difference is and what the commission might do about it.
Ripple the company and its currency, XRP, has been cruelled by this confusion. Currently, the company, its subsidiary, and its CEO are facing a class action suit for an alleged “Never-Ending Initial Coin Offering”, committed by selling XRP to the general public. How securities regulators might view XRP is very much the central question at stake in the lawsuit, and the SEC’s position has not been made clear.
Coinbase, scrambling for securities law legitimacy, refuses to offer XRP to its customers, and is abandoning controversial account holders like Wikileaks, along with some of its business activities, such as “custodial solutions for merchants”. Coinbase is said to be in pursuit of a brokerage license and is establishing subsidiaries designed to meet the needs of institutional investors.
HoweyCoin Doesn’t Pass the Howey Test
The SEC recently launched a publicity campaign aimed at informing investors of the risks of ICOs. At the heart of the campaign was a mock ICO – the HoweyCoin ICO – a website that baited investors before switching them to a warning about the perils of initial coin offerings.
U.S. and Canadian securities regulators launched Operation Cryptosweep in the past month, with around seventy coordinated investigations of crypto and ICO-related fraud. The message is clear: without warning, the SEC and state securities regulators are poised to strike.
For companies and individuals in the industry in the U.S., trepidation and reluctance reign. While other jurisdictions have managed to regulate cryptocurrencies away or welcome them fully, the American stance is one of complete confusion. That atmosphere is hardly conducive to innovation. Markets dislike uncertainty. A valid question for the U.S. SEC is “what are you going to strike at next?”
Sound off below. Is the SEC crypto’s wettest blanket? What can it do to up its game?
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CryptoBrekkie via Twitter, Pxhere