Securities and Exchange Commission (SEC) Chairman Gary Gensler did not, in fact, offer to exempt cryptocurrency exchanges, lenders and broker dealers from securities laws.
What he did do when bringing up the SEC’s “robust… exemptive authorities” in a Thursday (July 14) interview with Yahoo Finance, is say that the SEC is able to “tailor investor protection” to fit the specific aspects of cryptocurrencies.
All but one — bitcoin — of which are securities, he reiterated.
Gensler’s premise, however, is something many in the crypto industry strongly disagree with and have been having a fair bit of success in winning key members of congress over to their view. For example, a recent proposal for a broad cryptocurrency regulatory regime presented by a bipartisan pair of senators would give control of most tokens to the Commodity Futures Trading Commission (CFTC).
There’s also disagreement over the tailoring of cryptocurrency rules, where the SEC head talked about “tailoring what the disclosures might be,” rather than substantially altering the regulations themselves.
It’s a small but important nuance where refining disclosures to fit specific types of information needed would protect cryptocurrency investors and allow them to know what they’re investing in — a change that could mean either adding or removing disclosure requirements.
Just as there’s a difference between the disclosure requirements “for asset-backed securities and equity offerings,” there may be differences between an equity and a crypto token offering, he said.
“The public benefits by full and fair disclosure. Those are basic protections, whether you’re buying a crypto token or you’re buying a security,” Gensler said. “You get to decide what risk you want to take,” he added, noting that the person raising the money and selling financial assets ought to avoid defrauding would-be investors by providing information needed to invest wisely, or at least with their eyes open.
Come On In
Gensler repeated a favorite invitation, recommending that crypto companies come in and talk to the SEC about tailoring disclosure requirements.
It’s an offer that lost a fair bit of its luster after Coinbase came in to tell the agency that it planned to start a crypto lending program that would allow customers to earn interest on tokens locked into the leading U.S. exchange.
Coinbase CEO Brian Armstrong raged on Twitter about the SEC’s “really sketchy behavior” as it threatened to sue the exchange if it launched the program.
After complaining loudly that the SEC was “preventing Coinbase from launching the same thing that other companies already [had] live, it was creating an unfair market,” and Coinbase decided to scuttle the program.
That decision resonated for months, until the SEC settled a lawsuit against one of those competitors, BlockFi, for $100 million. Coinbase, again with some ill grace, recently agreed to register as a broker-dealer, which allowed it to launch Coinbase Earn — without the threat of a nine-figure settlement.
It is, perhaps, what Gensler is really talking about when he mentions tailoring disclosures.
Asked about people losing a lot of money in the crypto markets after the bankruptcy of several lenders — notably Voyager Digital and Celsius — Gensler said those losses were happening because there are “non-compliant platforms” in the cryptocurrency industry.
Although he did not offer any specific names, the comment was taken by many to imply essentially all of them.
Pointing to BlockFi’s settlement, which also included registering as a broker dealer, Gensler said it “showed there is a path forward” before adding that the SEC is “working in each of those three fields — exchanges, lending and the broker dealers — and talking to industry participants about how to come into compliance or modify some of that compliance.”
It’s a comment that many crypto-watchers took as being more of a warning than an offer to work together.
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