Gary Gensler, chairman of the Securities and Exchange Commission (SEC), has returned to the reiteration of cryptocurrency regulations, particularly regarding the debate over security tokens. Below is what happened.
The SEC against security token trading platforms
As anticipated, recently the SEC, specifically Gary Gensler, has returned several times to emphasize his views on crypto regulation and which cryptocurrencies are security tokens.
We see that despite a 70% increase in the crypto market for daily traders, executives leading US crypto exchanges are somewhat unhappy with the latest regulations regulated by the SEC.
In particular, Coinbase CEO Brian Armstrong said he might consider relocating the headquarters of the largest US cryptocurrency exchange unless the country changes its approach to regulation.
As is well known, that approach has recently been underscored by a handful of Securities and Exchange Commission enforcement actions against digital asset trading platforms.
In this delicate situation, congressional Republicans and even fellow SEC commissioners are criticizing chairman Gary Gensler
for attempting to force trading platforms to register without providing a workable process and clarifying the rules for proceeding.
For his part, Gensler retorts that he has exhaustively clarified his thoughts on cryptographic rules for months. Hence, he argues that the cryptocurrency industry may simply not want to listen to them. After all, following the rules would mean big cuts in profits, that’s what Gensler said at a congressional hearing Tuesday.
Gary Gensler: “all crypto are security tokens, except Bitcoin”
Gensler has repeatedly said in recent times that most digital tokens are securities, yet most cryptocurrency exchanges have made few adjustments to the way they operate.
Hence, according to the SEC’s view, all cryptocurrencies are security tokens and should be normatively framed as such. This implies that every transaction made in cryptocurrency, with the exception of those made in Bitcoin, falls under the jurisdiction of the SEC.
In addition, Gensler has repeatedly stated that behind every cryptocurrency is the presence of a group of people who attempt to promote their tokens by promising financial returns.
In this regard, on Monday the SEC filed a lawsuit against cryptocurrency exchange Bittrex, accusing it of, among other things, listing six tokens that were unregistered securities: OMG, Dash, Algo, TKN, NGC and IHT.
While most of these coins are obscure, Algo and Dash are well known and also trade on Coinbase, which has not responded to repeated questions about its intention to remove them from the list.
Earlier this year, Kraken stopped providing staking services in the United States as part of an agreement with the SEC. More specifically, the latter said that the service through which cryptocurrency owners can earn returns constitutes an unregistered security.
Yet other exchanges, such as Coinbase, continue to offer similar products, emphasizing their diversity. In late March, Coinbase was informed by the SEC that it intends to file an enforcement action against the exchange. The company has promised to fight any action in court if necessary.
What will be the future of crypto according to the regulations of the SEC?
According to the SEC’s statement, the crypto industry may have no choice but to recognize and adhere to the SEC’s view. Of course, all of these cases could have huge implications for cryptocurrency exchanges.
Specifically, in the worst-case scenario for exchanges, as more and more coins are designated securities, many platforms could be left only able to trade Bitcoin, the one token that the SEC has consistently considered a commodity and out of its reach.
On the other hand, exchanges may have to exit staking and have to start other activities. For example, in the Bittrex case, the SEC has indicated that it is not satisfied with crypto platforms performing broker-dealer, exchange and clearing movement functions, a complaint also raised in its lawsuit last month against Beaxy.
While some of the SEC’s positions could be successfully rejected in the courtroom, many others could set a precedent. Indeed, the regulator had previously handled initial coin offerings extremely effectively, which is why many of them had to leave the United States or adapt to what was imposed.
The SEC’s complaint against Bittrex describes the decision-making process on whether to list a particular cryptocurrency as expressed by former CEO William Shihara in 2017:
“The problem is that it will be viewed by the SEC as a security. I’m meeting with these guys face to face to get details on how much they want to collect, who they’re collecting it from and what they expect the after market to be like. It’s a big enough opportunity that we might want to roll the dice on the covert investigation. We have a couple avenues to go, but the idea was for them to take a position in Bittrex and take the risk of an SEC investigation with us.”