The hardest thing to understand about Nasdaq-listed Coinbase’s new petition asking the U.S. Securities and Exchange Commission to start drafting the rules to regulate digital assets is not its timeliness, even if it is at least one year past its expiration date. — or a year too soon, depending on who you talk to.
Rather, it’s really who Brian Armstrong, CEO of the current No. 2 US crypto exchange, is talking to. And that raises a question: is he shooting himself in the foot?
While the petition, launched on July 21, asks the US securities regulator to begin a public discussion on what a regulatory framework for cryptocurrencies should look like, its 30 pages and 50 questions for the SEC to answer will boils down to two questions:
- Write rules explaining what makes a cryptocurrency a security or a commodity.
- Write rules that eliminate or replace parts of traditional action-oriented code that simply don’t work with blockchain-based cryptocurrency technology.
Which is fine and dandy, especially #2, which discusses the practicalities of changing or adding to the securities code to fix the problems. One of the main sticking points is the stock-driven requirement that all transactions must be cleared by a registered clearing agency that could shack up blockchain miners and stakers — an issue that prompted 99 senators to trying to amend the $1 trillion infrastructure bill in November after the crypto industry ramped up its lobbying power for the first time.
See it here: Crypto Influence Shows Up as Treasury Pledges Protection for Miners and Stakeholders
However, #1 ignores several things, including the fact that SEC Chairman Gary Gensler answered the question a long time ago (in his view, almost all of them are headlines) and that he’s in the process of to lose the securities war against commodities in Congress.
“The fact is, most crypto tokens involve a group of entrepreneurs raising funds from the public in anticipation of profits — the hallmark of an investment contract or security in our jurisdiction,” Gensler said in april.
And since he’s a former chairman of the Commodity Futures Trading Commission (CFTC) and spent several years teaching crypto and blockchain at MIT, Gensler knows the industry and technology inside out and isn’t on the about to change your mind.
Beyond that, it pushes back against the public argument of cryptocurrency securities — and the industry view that almost all of them aren’t — which is winning hearts and minds on Capitol Hill, where Senators Cynthia Lummis (R-Wyoming) and Kristen Gillibrand (D-New York) are leading the charge for legislation that would create a broad regulatory framework for crypto that would give the CFTC the lion’s share of oversight responsibility.
See also: Bipartisan bill to give CFTC more power over crypto at SEC expense
But the push didn’t gain much momentum – Lummis and Gillibrand admitted this week that the bill would not pass this session. Additionally, the debate could be reframed in September, when the proposed crypto regulatory framework ordered in President Biden’s executive order is due.
By arguing that “the cryptocurrency market is waiting to be unlocked” and that “the SEC has so far been unwilling to write new rules for cryptocurrencies,” as the director of Coinbase policy Faryar Shirzad in the blog post that accompanied the petition. launch, the trade could well restore the advantage to Gensler’s camp.
Talking in detail about the details that crypto securities regulation should include is a public conversation from the last year, before there was serious opposition outside the crypto industry to Gensler’s position. — or for 2023, if and when some version of the Lummis-Gillibrand bill passes.
fight in court
In addition, the SEC doubled down on its argument on crypto securities on July 21, when it announced the crypto exchange industry’s first insider trading indictment – of an official at Coinbase and two friends, as it happens – and in doing so set nine cryptocurrencies as securities.
Although it may not seem very relevant, this is the first time the agency has listed specific tokens as currencies directly rather than through the backdoor announcing a settlement with the company that sold or created it, noted. CoinDesk.
This led a CFTC commissioner, Caroline Pham, to Tweeter issued a statement calling the SEC action “a stark example of ‘regulation by enforcement’.”
See also: SEC’s ‘backdoor’ approach to crypto may cost it energy
The comment, echoed by others from CFTC Chairman Rostin Behnam, shows just how deep the opposition to Gensler’s definition runs.
So, starting a conversation about the many rules needed to properly regulate cryptocurrencies that are security tokens could probably wait until the term is better defined.
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