maybe when i see that The law will come sooner or later for crypto, the industry has rallied behind an effort to enact a new regulatory framework just for crypto – one that will bear the full wrath of the Howey to test. Companies, including Coinbase, have filed a petition with the SEC to issue new, digital currency-specific rules. In the Senate, meanwhile, two separate bills would transfer power from the SEC to the Commodity Futures Trading Commission, which is widely seen as lighter and more industry-friendly. At every crypto conference, and in countless op-eds and congressional hearings, you can hear crypto executives and their supporters lament the injustice of “regulation by enforcement”. The government has not issued clear rules, they argue, leaving companies in the dark about how to proceed without being charged.
“The regulatory landscape in the US is sketchy at best,” said Brandon Neal, the chief operating officer of Euler, a decentralized finance project. “Not only is it causing a lot of confusion in the industry and the public, but I think it may be stifling innovation.”
For many securities law experts, however, there is nothing vague about it. “If you register and disclose, you are not complying with SEC disclosure laws,” said Roger Barton, managing partner of Barton LLP. “I think the securities laws are clear enough. I don’t know that the SEC should make specific rules regarding crypto.”
It sounds intuitive that new technology requires new rules and regulations. But many securities attorneys believe that the general approach exemplified by the Howey test is part of why US securities regulations have worked quite well over the years. “The downside of providing clarity — and this is why we don’t define ‘fraud’ in the law either — is that once you write down what the parameters are, you’ve been given a roadmap to get around it,” says Hilary. all. “So the test must be flexible. The downside of this is that there will be some uncertainty about how it will be applied.”
Realistically, none of the bills in Congress will become law anytime soon, and the SEC won’t budge and issue new regulations. That leaves “regulation by enforcement” as the only item on the menu. No one can say exactly what will happen to the crypto industry if the SEC starts winning these big cases. The penalty for issuing an unregistered security can range from fines to criminal charges if fraud is involved. Perhaps most alarmingly for the industry, anyone who has invested in something that will later be considered a value has the right to get their money back. That means crypto startups whose tokens have been written off could be subject to massive class-action lawsuits. Aspiring crypto entrepreneurs, meanwhile, will likely be put off by the hassle and expense involved in registering a security with the SEC.
“The disclosure requirement would increase costs,” Diamond says, “and probably 80 to 90 percent of these projects would never have gotten off the ground.”
The industry seems to largely agree, hence the opposition. In a legal filing, Ripple states, “Requiring the registration of XRP as a security detracts from its primary utility. That utility depends on the near-instantaneous and seamless settlement of XRP in low-cost transactions.” More broadly, opponents of the SEC’s approach say it will kill innovation and drive all the most talented crypto entrepreneurs to countries with more lax regimes.
Whether this would be good or bad ultimately depends on some philosophical questions about crypto. If you think cryptocurrencies are an astonishing innovation that will unlock all sorts of hitherto impossible use cases, you might think it’s crucial to put in place a lenient regulatory regime that helps the industry thrive at the expense of comprehensive investor protections. . By contrast, if you remain unconvinced that crypto has created anything but a speculative asset bubble, you probably don’t think so. Instead, you might conclude that an industry that cannot exist if it has to abide by laws designed to protect investors is not an industry worth saving.
