Coinbase sees unique regulator, new framework for crypto oversight

[ad_1]

Coinbase wants the United States to create a new regulator to oversee the digital asset market, the company said in a policy document released Thursday.

Placing crypto oversight in the hands of a digitally native regulator would help the United States and industry avoid fragmented and inconsistent oversight of unique and concurrent innovations in digital asset markets, Coinbase said.

As it stands, the crypto sphere sees the regulation of several bodies. Coinbase, for example, paid $ 6.5 million in March to resolve a Commodity Futures Trading Commission (CFTC) investigation into its trading volumes, then halted the launch of a loan product called Lend last month. after the Securities and Exchange Commission (SEC) allegedly threatened to sue the company.

State regulators have also played a role in overseeing the space. New Jersey, Texas and other states ordered crypto firm BlockFi this summer to stop offering interest-bearing accounts to residents as regulators say the products are not registered as securities. .

We started where a lot of people start, which is taking the existing multiplicity of regulators and trying to figure out what minimal surgery you could do to make things work, Faryar Shirzad, director, told CNBC. of Coinbases policies and author of Thursday’s paper. And then there was a point where we kinda looked at each other [and] we said it takes more effort to try to adapt the current system which is based on an old market structure, more intellectual effort, I would say than starting from scratch.

The patchwork US regulatory regime, as it applies to crypto, puts it at risk of falling behind other countries in overseeing digital assets, Shirzad said.

The United States risks becoming a regulatory taker rather than the primary creator of modern financial services, Shirzad told CNBC.

Old laws, new technologies

In addition to oversight by a single regulator, Coinbase suggested creating a self-regulatory organization to strengthen the oversight regime and provide more granular oversight.

In announcing Lend’s filing, Coinbase last month cited a desire for regulatory clarity for the entire crypto industry. Thursday’s policy document frames the company’s vision of that clarity.

At least part of Coinbase’s frustration stems from the SEC’s insistence that the precedent, as it stands, is clearly something the company is contesting.

“The SEC told us they considered Lend to involve a security, but wouldn’t say why or how they came to that conclusion,” Coinbases legal director Paul Grewal wrote in a September 7 blog post. .

The SEC argues that interest-bearing accounts like those that would exist through the loan constitute investment contracts under the Howey test, a standard established by a Supreme Court case in 1946. In this case, investors bought rows of orange trees in Florida and agreed to let the Howey Company manage the trees, harvest and sell the fruit, and give investors a share of the proceeds. By the move, a Bloomberg columnist said in July that oranges, trees and land are not securities, but the deal is.

Grewal, however, argued that holders of crypto Coinbases would not invest but would lend.

Coinbases’ policy statement directly targets the SEC’s logic of adapting old laws to new technologies.

Laws drafted in the 1930s to facilitate effective oversight of our financial system could not contemplate this technological revolution, the company wrote on Thursday. Forcing the full spectrum of digital assets into codified oversight categories before computers are used risks stifling the development of this transformational technology, pushing overseas the innovative center of gravity that is currently in the United States. .

Cryptocurrency, Shirzad said at a press briefing Thursday, does not fit perfectly into the existing financial system.

For this reason, the company suggested a second prong to its vision: it views regulated digital assets in a separate framework from traditional finance.

It didn’t make sense to take a legacy regulation and somehow turn it into an agency that would be able to review those markets again, Shirzad said.

Coinbase CEO Brian Armstrong backed up this thinking in an op-ed published Thursday in the Wall Street Journal.

Our existing financial regulatory system does not work effectively for the open, decentralized networks created by crypto, Armstrong wrote. The regulation has been built around a series of transfer agents of financial intermediaries, clearing houses and traditional brokers who play no role in crypto transactions.

Empower space

In addition to its regulatory suggestion, Coinbase said it wants a crypto space to support interoperability and fair competition, and to hold crypto holders accountable through increased transparency and protection against fraud and market manipulation.

The document, Armstrong wrote in his editorial, is intended to spark a conversation about the regulation of crypto that is not anchored in specific products or enforcement actions, but rather takes a high-level view of the evolution of the financial system and the new technology behind it.

Coinbase is hardly the only crypto company sketching its vision for a regulatory future Andreessen Horowitz and others have followed suit. Some have come in response to a request from Sen. Pat Toomey, R-PA, who is beginning to develop crypto legislation, Bloomberg reported.

In the balance is a crypto asset market that has grown from $ 16 billion five years ago to $ 2.3 trillion today, according to CNBC.

We understand that high-level proposals don’t and shouldn’t become law overnight, Shirzad wrote. But what they can do is move the debate forward in a way that is useful to everyone, including members of Congress who are increasingly focusing on this area.

[ad_2]