Young crypto industry could thrive if SEC allows it to thrive

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The noise surrounding the $ 2.2 trillion crypto industry often stifles the reality that we are on the verge of something revolutionary. If things go well, crypto and blockchain technology could usher in the next internet revolution.

Things are now terribly wrong. The United States has a very real chance of killing this business here by driving digital innovation overseas and ceding advances to other countries, including Communist China.

Why? Because our regulators, primarily those at the Securities and Exchange Commission, are either too reckless or too greedy for the field (or a combination of the two) to understand the dangers of their stupid approach to overseeing important emerging technology.

Yes, there is a need to regulate the crypto world. The cryptocurrency hype seems to be popping up every day (boxer Manny Pacquiao has one) and criminals are using digital coins for payment. Meanwhile, currencies themselves often seem separate from the all-important blockchain technology improvement that could revolutionize the way we buy and sell things.

But remember the Internet of 1995, the days of Netscape’s IPO, when the digital revolution was about to explode. Criminals have certainly used online sites (they still do) to do bad things. There was a lot of hype. Let us not forget the bubble which exploded around 2000, causing large small losses to investors.

Yet the SEC, then led by Arthur Levitt and aided by savvy law enforcement officials and government policy makers, took a sane approach to regulating what author Michael Lewis has dubbed The New New Thing. .

It wasn’t perfect, but overall they chose a setting that allowed innovation to flourish where everyone knew the rules of the road. The result is what we enjoy today: the creation of some of the largest and most profitable companies the world has ever seen.

Cryptocurrencies such as Bitcoin have become so popular that countries like El Salvador have adopted it as legal tender. REUTERS / Dado Ruvic / File

Compare that with the regulatory chaos surrounding crypto. There are no set rules. The agencies are vying for the land and debating the legal details. The SEC says it wants to protect the public from fraud, but it has done so through capricious enforcement actions that fail to protect innovators.

The people who created Ripple Labs learned this firsthand. Before the end of the Trump administration, Jay Clayton, then SEC chief, filed charges that Ripple violated securities laws by failing to record sales of the XRP cryptocurrency as security with the necessary disclosures.

The lawsuit sent shockwaves through the digital currency industry. Ripple was founded in 2012 and has grown into one of the largest digital platforms, an innovator in cross payments involving crypto and currencies.

The case halted Ripples’ domestic affairs in its tracks. Various crypto exchanges have written off XRP. Its value has exploded. As for the crux of the matter: why is XRP a security, when the SEC views cryptos like Bitcoin and Ether as mere commodities and out of its jurisdiction?

The reasoning is this: Ripple continues to use XRP to develop its platform. The Ethereum network no longer uses Ether for funding. This makes XRP security and Ether something else, according to the SEC.

I’m not a crypto expert, nor a securities lawyer, but speaking to both, it’s pretty clear that the case has holes in it. Other than the missing disclosure, where is the investor scam? There isn’t, according to SEC charges.

As Ripple battles the SEC, some XRP investors have launched a class action lawsuit claiming the SEC has been capricious in its enforcement actions, picking winners and losers regardless of the law.

The lawsuit also states that Clayton’s motivation for billing Ripple and not Ethereum may be personal: since leaving the SEC, he has become an advisor to One River Asset Management, which invests in the cryptocurrency Bitcoin and Ethereums Ether.

Of course, Clayton, a longtime securities lawyer, wouldn’t be the first government official to take advantage of the revolving door. Merely representing someone who owns Ether is weak conflict at best.

Former SEC Chairman Jay Clayton was the first to intervene in the crypto industry when he filed charges against cryptocurrency Ripple Labs XRP. REUTERS / Shannon Stapleton / File

More troubling is the reckless Keystone Cops method that the SEC uses to regulate this crypto. Current chairman Gary Gensler wants to crack down on crypto even more than Clayton, even though the authority of the SEC is limited under current law, which means it has to expand to do business. And as the SEC expands, the crypto industry is looking for more user-friendly places to operate. Ripple’s relatives say their US operations are at a standstill, but are thriving overseas.

More annoyingly, there is a simple solution offered by SEC Commissioner and industry advocate, Hester Peirce, which is totally ignored by Gensler & Co.

Known as Crypto Mom, Peirce is proposing a three-year moratorium on these random enforcement actions so the industry can catch its breath and innovate. Regulators and possibly Congress can create a new holistic approach to monitoring the next internet before forcing it into Chinese hands.

As always, the mother knows best.

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