BigONE’s View: Regulators Will Become An Important Factor Affecting The Development of Cryptocurrency
Gary Gensler, the US Securities and Exchange Commission (SEC) chairman, has spoken extensively about cryptocurrencies for the first time since taking office. According to Gensler’s remarks at the Aspen Security Forum, many cryptocurrencies are operating as unregistered securities. He stressed that the SEC has jurisdiction and will act to protect investors.
However, many colleagues from other management agencies disagreed with his speech. Brian Quintenz, Commissioner of the Commodity Futures Trading Commission (CFTC), tweeted: “Just so we’re all clear here, the SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold, oil…. or #crypto assets.” BigONE also agreed with those who opposed Gensler’s views on regulation.
In the United States, responsibility for the regulation of encrypted assets is divided amongst several agencies. Apart from the SEC and the CFTC, these include the Financial Crimes Enforcement Network (FinCEN), the Office of the Comptroller of the Currency (OCC), and individual state government agencies.
Are They Securities or Commodities? BigONE Thinks Neither. It’s a Cryptocurrency!
Cryptocurrency is a massive industry that includes projects with no business plan, Dogecoin, which has a market value of $26 billion, and large corporations with hundreds of employees and offices worldwide. The scope of cryptocurrency has expanded from simple digital payment systems to networks expected to revolutionize the Internet. In addition, the term ‘cryptocurrency’ is difficult to define. Many cryptocurrencies are created by people seeking to disrupt traditional business models.
However, Gensler’s words have caused concern among both cryptocurrency enthusiasts and the CFTC for a reason. He believes that many cryptocurrencies meet the SEC’s definition of securities. He also pointed out that securities and any platform for trading securities fall under the jurisdiction of the US Securities and Exchange Commission. As early as the 1940s, the United States Supreme Court defined an investment contract (a type of security) as a method of personal investment in which people expect to profit from the efforts of the initiator or a third party. According to this definition, the SEC regulates a large portion of the cryptocurrency industry, including decentralized financial platforms and cryptocurrency exchanges. As a result, BigONE believes that regulatory agencies will play an important role in developing cryptocurrencies.
Why Does Gensler Want To Treat Cryptocurrencies As Securities?
BigONE believes that the reason comes from the SEC’s mission to protect investors from fraud. Although the system’s criteria for defining fraudulent behavior are imperfect, the SEC can intervene if a company misleads people or manipulates the market.
Gensler has asked the US government to provide the SEC with more resources and authority to provide similar protection to cryptocurrency investors. It appears the SEC has investigated 75 cryptocurrency-related cases, many of which involve fraud and unregistered securities. However, when compared to the over 11,000 cryptocurrencies on the market, this is merely a drop in the ocean.
If cryptocurrencies are classified as securities, they must comply with a slew of disclosure requirements, such as quarterly reports that require a transparent formula for calculating potential investment risks. Because only registered brokers are permitted to trade securities, cryptocurrency exchanges must either become registered brokers (institutions) or cease trading in certain cryptocurrencies. However, this is only part of the problem. If the SEC decides to regulate cryptocurrencies as unregistered securities, the issuing companies may face penalties such as lawsuits, large fines, and delisting their tokens. Not only will this alienate other crypto regulators, but it may also weaken the industry as a whole.
How Will the SEC operate in practice?
In theory, BigONE believes Gensler’s argument is plausible. The issue is that some of these cryptocurrencies have been traded and operated for many years, and implementing them in practice will be extremely difficult, especially given the traceability of historical records.
Gensler did not specify which cryptocurrencies might be considered securities, but BigONE believes that the SEC may declare Ethereum (ETH) security rather than a cryptocurrency and do the same as Ripple (XRP). The Ethereum Foundation will most likely file a lawsuit if this happens. The current legal battle between the SEC and Ripple hinges on whether Ripple is a security. The wider concern is whether the SEC will file a lawsuit against every cryptocurrency not registered as a security. In addition, what penalties will Ripple (XRP) face if it is deemed security?
Another troubling aspect is that the results of this regulatory action are difficult to see. BigONE believes the SEC’s approach is not beneficial to investors. According to news reports from relevant agencies, cryptocurrency investors in the United States have lost more than $80 million due to crypto fraud in just six months. BigONE is not confident that the SEC will successfully tackle this level of fraud. Instead, what is required is for the entire cryptocurrency industry to come together to create the groundwork for creating a robust regulatory framework that is fit for purpose.
BigONE is a global cryptocurrency exchange that provides a platform for trading various cryptocurrencies. It was founded in 2017 and registered in the Netherlands. The group operates in Russia, Brazil, Vietnam, Seychelles, Singapore, Japan, and Indonesia, providing marketing, investment, and blockchain technology research & development.