It’s time to end the SEC crypto clarity charade

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The SEC has promised clarity on cryptocurrency but remains elusive after years of speech, … [+] declarations, records and prosecutions.

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For five years, investors and project developers in the $ 2 trillion blockchain innovation space have been subjected to an increasingly infuriating charade as the US Securities and Exchange Commission (SEC) United described regulatory clarity. Years of SEC speeches, public statements, meeting records, correspondence, and first-hand accounts from market participants provide anything but clarity for digital asset rules or technology projects. distributed ledger (DLT). Another financial crisis is brewing.

SEC Chairman Gary Gensler said in an appearance at the Aspen Institute this summer that the rules are extremely clear on crypto. In a recent interview with the Financial Times, he urged developers to talk to us, come forward because the fate of the industry, like all finance, is about trust. Few can see this clarity, but its absence is so acute that even the largest U.S. companies in the blockchain industry can no longer count on the SEC to provide clear direction other than through a lawsuit.

Seeking clarity, Coinbase received a slap in the face

Last week, the CEO of crypto exchange Coinbase (Nasdaq: COIN), Brian Armstrong, tweeted an account that is now alarming. Other crypto companies offer lending products to clients who hold digital assets, and the only listed exchange in the United States wanted to do the same. So, Coinbase took Gensler’s advice and entered. They contacted the SEC for advice on their product. Armstrong says the SEC responded with subpoenas for files and depositions, demanded a list of all their customers who had expressed interest in the product, and ultimately issued a notice to Coinbase a Wells warning of. impending enforcement action. Armstrong said that in May of this year, the SEC was the only office in Washington that refused to meet with him at all.

They refuse to give their opinion in writing to the industry on what should be allowed and why, and instead engage in bullying tactics behind closed doors, Armstrong tweeted. Meanwhile, many other crypto companies continue to offer a lending feature, but Coinbase is somehow not licensed to do so.

Pick winners and losers

Coinbase is not the first instance where the SEC picks winners and losers in the crypto space with its “regulation by app” approach. The mind-boggling SEC v. Ripple Labs revealed the inconsistency of the SEC’s concept of clarity. The agency argues that XRP, the native digital currency used by Ripple and other companies on an open and decentralized ledger, has been unregistered security since its introduction in 2013, and the company, its executives, and every investor on the market should have known. The SEC was forced to admit in court that it had never given fair notice prior to trial to a market player (and there were many) who were asking for advice on what XRP it was. acted as a title.

Minutes of meetings emerged in which Ripples executives pleaded with then-SEC Chairman Jay Clayton in 2018 that they were in purgatory due to lack of clarity on the status of XRP, and Clayton gave no indication other than to continue speaking to his staff. When the lawsuit took place in December 2020, he not only accused the company of seven years of unregistered securities transactions, but executives recklessly aided and abetted those transactions and demanded billions of dollars in fines. The action sent XRP plunging, triggered panic selling among millions of holders and wiped out $ 15 billion in value.

Regulatory darlings

As the SEC hammers Coinbase and Ripple, it gives Ethereum a pass. Ether was launched in 2014 in what platform creator Vitalik Buterin called a buy-to-buy sale, better known as an Initial Coin Offering (ICO). Buterin also organized the sale of 500,000 ethers to hedge fund investor Mike Novogratz in 2015, which Buterin himself credited as having guaranteed the financial survival of the platform. This means that there were centralized sales of huge amounts of Ether and an expectation of profit from the speculative investors who bought it.

Joseph Lubin, co-founder of Ethereum, spent much of 2018 giving enthusiastic speeches about the success of his project after he and a group of Ethereum-related investors and lawyers surrendered to the SEC in March of the same year to exert pressure. so that the ether is not declared a title. In June 2018, those efforts paid off when SEC Corporate Finance Director William Hinman gave a speech stating that ether was not a security because, aside from fundraising, it had decentralized over time and was not subject to SEC regulation. The price of ether in secondary markets has risen 600% since then. In contrast, the SEC said in the Ripple lawsuit that XRP was a security from 2013 to the present day and never had any use other than an investment contract in Ripple. Some 19,000 XRP holders and aggrieved developers unrelated to Ripple are vehemently contesting their request to intervene in the case. The contradiction is glaring.

Follow the money

Without congressional control, a regulator can flout the law. Why was Ethereum blessed while rival Ripple was sued? Why is Coinbase getting a Wells notice when crypto lenders like Aave, built on the Ethereum platform, get a pass? Jesse Powell, CEO of Coinbases rival Kraken, tweeted a response to Armstrong that regulators are slaughtering the right players because it’s convenient and asked who is behind the effort to drive domestic businesses and consumers to abroad? Angry XRP holders point to Clayton and Hinmans trading ties to Ethereum before and after their SEC tenures. Powell suggests that established financial players welcome regulatory chaos to protect their income from transaction fees if it deters cryptos from disrupting traditional business models.

Will Congress do its job?

The United States has experienced a FinTech boom, but that doesn’t mean it will continue. The continuing charade of clarity is pushing innovators and fintech investors abroad. SEC Chairman Gary Gensler will appear Tuesday for a Senate Banking Committee watchdog hearing. Is there going to be real oversight of SEC regulation by law enforcement? Will the senators challenge him on the masquerade of clarity? Will Congress legislate if Gensler refuses to act? Many angry and frustrated people, employers, investors and American voters will not wait any longer. The SEC is supposed to provide clear and unambiguous rules through a transparent process. The lack of clarity has already created a financial crisis, and it can happen again.

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