SEC Chief Reiterates View That Crypto Assets Are Securities

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The pol­i­cy­mak­er has con­tin­ued to stake a claim for the cryp­to asset indus­try for his agency tasked with reg­u­lat­ing secu­ri­ties in the Unit­ed States.

Accord­ing to Gensler, cryp­tocur­ren­cies should be reg­u­lat­ed the same way as secu­ri­ties. In a speech on reduc­ing risk and increas­ing trans­paren­cy of deriv­a­tives at the Inter­na­tion­al Swaps and Deriv­a­tives Asso­ci­a­tion Annu­al Meet­ing on May 11, he said:

“Most cryp­to tokens involve a group of entre­pre­neurs rais­ing mon­ey from the pub­lic in antic­i­pa­tion of prof­its — the hall­mark of an invest­ment con­tract or a secu­ri­ty under our jurisdiction,”

Security or Not Security

Gensler is angling for full con­trol over the reg­u­la­tion of the cryp­to sec­tor, which is like­ly to result in harsh restric­tions for com­pa­nies and investors in the country.

He claimed that very few cryp­to assets oper­ate like com­modi­ties or dig­i­tal gold, which is why his agency should have juris­dic­tion over them rather than the Com­modi­ties Futures Trad­ing Com­mis­sion (CFTC).

“Most cryp­to tokens are invest­ment con­tracts under the Supreme Court’s Howey Test,” he added.

The Howey Test refers to a 1946 U.S. Supreme Court case for deter­min­ing whether a trans­ac­tion qual­i­fies as an invest­ment con­tract. Under U.S. law, an invest­ment con­tract exists if there is an “invest­ment of mon­ey in a com­mon enter­prise with a rea­son­able expec­ta­tion of prof­its to be derived from the efforts of oth­ers.” Gensler believes this is the case for most dig­i­tal assets.

If Amer­i­can law­mak­ers deter­mine cryp­tocur­ren­cies to be secu­ri­ties, com­pa­nies deal­ing with them would come under the strin­gent reg­u­la­tion, and reg­is­tra­tion require­ments that firms offer­ing secu­ri­ties are sub­ject to.

Accord­ing to Gensler, if a deriv­a­tive con­tract known as a swap is based on a cryp­to asset, it is a secu­ri­ty-based swap and sub­ject to SEC reg­is­tra­tion, he added:

“It’s impor­tant to rec­og­nize that if the under­ly­ing asset is a secu­ri­ty, the deriv­a­tive must com­ply with secu­ri­ties regulations.”

Gary_Gensler
Gary Gensler. Source: Bloomberg

The SEC Chair also wants to see decen­tral­ized exchanges that offer deriv­a­tives reg­is­tered with the agency.

Those oppos­ing this line of think­ing, such as Sen­a­tor Cyn­thia Lum­mis and Sen­a­tor Kirsten Gilli­brand, believe that cryp­to assets are com­modi­ties and should be reg­u­lat­ed by the CFTC.

Crypto Market Continues to Crash

The call for tighter reg­u­la­tions comes at a time when cryp­to mar­kets are falling hard into what could be anoth­er pro­longed bear market.

The cumu­la­tive mar­ket cap has been ham­mered a fur­ther 13% on the day in a fall to $1.2 tril­lion, its low­est lev­el in about a year.

Fea­tured Image Cour­tesy of Bloomberg

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