The U.S. Securities and Exchanges Commission (SEC) continues to deny the crypto community the clarity it needs from the governing body. While this is likely due to its efforts to catch up with the technology and make the most thorough rulings it can, the SEC’s caution needs to extend to the statements it releases, especially when they have the potential to cause confusion.
Exchanges Under Scrutiny
Earlier today the SEC signaled its intention to widen its oversight net from Initial Coin Offerings (ICOs) to the cryptocurrency exchanges within its jurisdiction. In its statement, the Commission said:
“If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration…”
SEC, ICOs and the Howey Test
In mid-2017, the SEC announced its decision to apply the Howey Test to determine whether tokens released during an ICO were securities or not. The Howey Test does, indeed, find that ICO tokens are securities, to be either SEC-registered or rely on one of the SEC’s exclusions.
As recently as last week, the Commission was reported to have launched a wide-ranging probe into ICOs, to determine whether they were in breach of U.S. state and federal securities laws. Many ICOs prudently exclude participation by U.S. nationals to avoid SEC oversight altogether.
So When Does a Token Become a Coin?
It is likely, but not explicit, that the SEC is firing off a warning to exchanges that list post-ICO tokens for exchange. It is the hope and anticipation of many investors in ICOs that the tokens they buy will become tradable on exchanges. One of the primary actual benefits of being an ICO investor is the capital gains potential of their tokens once they hit exchanges.
According to Spencer Bogart, a partner as Blockchain Capital:
“The SEC continues to draw a line in the sand between securities and non-securities but without going so far as to name names.”
As a result of the SEC’s statement, bitcoin plunged around 10 percent to fall under the critical $10,000 USD mark. So even if the SEC is more concerned with altcoins or post-ICO tokens that are now trading on exchange platforms, the crypto community is not getting that message.
More Yellen, Fewer Whispers
Financial markets hang on every word issued by the U.S. Federal Reserve. The Fed, in appreciation of its market-moving potential, deploys language with the utmost of caution, never accidentally signaling plans they do not have.
Bitcoin’s dramatic price plunge following the SEC’s statement proves the SEC has market-moving powers over the crypto space. It would only be appropriate, then, for the Commission to apply more rigour to the language used in their announcements. Failing to name names is no longer acceptable in an industry that is becoming more mainstream and that will only grow bigger and more important.
What’s your take? Is the SEC being open with the public? Should they be? Leave your thoughts below.
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