on the crypto
It may seem surprising that the SEC (Securities and Exchange Commission) move to prosecute three people for insider trading in cryptocurrencies has attracted widespread criticism. According to the indictment, a former Coinbase employee tipped off his brother and friend about which assets would be listed on the stock exchange.
Surely taking action against insider trading is a good thing? Well ... yes. But it is not the accusation itself that is causing the industry to rise up. In its press release on the allegations, the SEC inserted a sentence saying that nine of the 25 assets traded by the trio were in fact stocks. It did not disclose which cryptocurrencies it is.
If many cryptocurrencies are indeed securities, the SEC can prosecute them for not registering them. Cryptocurrencies that turn out to be unregistered securities could face hefty fines and would then have to overcome a series of legislative hurdles in order to operate and be traded in the United States. This is why several cryptocurrency industry insiders, including Shark Tank judge Mark Cuban, are concerned.
Are cryptocurrencies commodities or stocks?
The debate on how to define a cryptocurrency is almost as old as the digital asset industry itself. At the moment, most cryptocurrencies in the United States are classified as commodities, which means that they are within the remit of the CFTC (Commodities and Futures Trading Commission) and do not have to follow SEC security rules. Securities are controlled by the SEC and there are strict rules on how they can be traded and what information must be disclosed. Many cryptocurrency exchanges are not allowed to trade stocks.
The SEC is in the midst of a lawsuit against a cryptocurrency, Ripple (XRP), which it claims operated as an unregistered security. Its boss, Gary Gensler, believes a number of existing cryptocurrencies are in the same boat and operate as unregistered securities. But cryptocurrency executives argue the rules aren't clear and haven't been communicated properly.
Insiders from the cryptocurrency industry, including the CFTC, accuse the SEC of adopting rule-based enforcement. This essentially means creating rules by prosecuting individual cases rather than creating a clear regulatory framework that people can follow. In fact, Coinbase immediately filed a petition asking the SEC to develop a "workable regulatory framework for digital asset securities."
Why Mark Cuban thinks it would be a "nightmare"
Many industry players criticize the SEC for pursuing prosecution without first establishing clear rules. But for Cuban it is precisely the creation of these rules that could create a problem. In response to a tweet from Senator Pat Toomey on the subject, Cuban tweeted: “Do you think that's a bad thing? Wait to see what they come up with for token registration. This is the nightmare that awaits the cryptocurrency industry ”.
Cuban has said in the past that it believes more regulation is needed. However, the great debate is about what form this regulation should take. For example, Cuban believes that cryptocurrency regulation should be built on the basis of existing fraud laws. He does not want to create an excess of bureaucracy which, as he puts it, "would keep thousands of lawyers busy".
On the other side of the debate, people like Treasury Secretary Janet Yellen want to see a "full picture so there are no gaps in regulation." Several agencies are responding to President Biden's executive order, which would create a framework for cryptocurrency legislation. It is not yet clear how burdensome this framework will be for existing projects and exchanges.
In conclusion
Increased regulation is on the way and will have a major impact on the cryptocurrency industry. In the long run, it could build trust and give the entire market a stronger foundation. However, cryptocurrency projects will almost certainly have to abide by a greater number of rules, which could be costly and time-consuming. As cryptocurrency investor, it is worth observing - and even participating - in these discussions. The shape of any new cryptocurrency regulation could have a major impact on the performance of your investments over the long term.
