Two-lane Highway Takes Shape for U.S. Crypto Regulation: Digital Securities Regulation by SEC, “Digital Commodities” Regulated By CFTC

In this piece for Proskauer’s Blockchain & The Law blog, authors Frank Zarb, Louis Rambo & Wai Choy comment on the emerging regulatory framework for cryptocurrency under the Trump Administration. A dual-track approach is taking shape where the SEC would regulate “digital investment assets” and the CFTC would regulate “digital commodities,” with both agencies sharing oversight of market intermediaries engaged in digital asset trading. This framework represents a blend of legislative action through Congress and regulatory initiative from the SEC.

Congress nearly passed the Clarity Act last week, which the House had approved last summer, but passage was delayed due to disagreement over whether stablecoin issuers could pay interest, which could compete with the banking industry. The bill’s sponsors have postponed the markup, though passage appears likely in the near future. The Clarity Act would preserve the Howey “investment contract” test for evaluating digital securities but limit its scope, with digital securities potentially becoming digital commodities in the secondary market following issuance.

SEC Chairman Paul Atkins delivered a speech at the end of last year affirming his support for legislation and echoing the distinction between digital securities and digital commodities. He promised to develop a clear “taxonomy” to evaluate and regulate digital investment assets, signaling the SEC’s commitment to providing regulatory clarity for the crypto industry…

CONTINUE READING…