Regulation
How clear and effective crypto regulations were born
The development of blockchain-based digital assets and the multi-trillion dollar market that has formed around them has proven to be a significant challenge for global lawmakers and regulators.
The digital economy continues to advance, making it urgent to create an appropriate legal framework that strikes a balance between promoting innovation and maintaining the integrity of our financial system.
The key to achieving balanced rules and regulations is for good faith actors to follow the rules where they are clear and push for clarity where they are opaque, while ensuring that industry players and regulators work together to create a strong framework that promotes innovation and protects consumers.
This opinion article is part of CoinDesk State of Crypto Week sponsored by Chainalysis. Zac Townsend is the CEO and co-founder of a Bitcoin-denominated insurance company.
It may seem that the last few years have been anything but productive in accomplishing this mission, but progress is being made nonetheless.
Well-meaning actors within the crypto industry have worked tirelessly to comply with legitimately stated rules while advocating for much-needed clarity in areas where none exists. However, their efforts have historically been met with some hostility from regulators, particularly the U.S. Securities and Exchange Commission (SEC).
The SEC has repeatedly maintained that there is no ambiguity in the rules and that existing laws are effective and clear when applied to digital assets. In the words From SEC Chairman Gary Gensler, “Some in the crypto industry have called for more “guidance” when it comes to crypto tokens. However, over the past five years, the commission has spoken here with a fairly clear voice.
However, for the industry as a whole, including public companies like Coinbase that have done their best to comply with the aforementioned existing rules, the only thing that is clear is that the current framework fails to protect investors and businesses.
Recently, leaders of this work have built around themselves a broad advocacy community in Washington, DC and abroad, advocating for a collaborative process in which rules could be written to accommodate this very new type of financial technology. Their efforts have generally drawn silence and lawsuits from regulators, but have attracted increased attention from lawmakers.
The SEC’s legal actions against legitimate individuals and entities operating in the crypto space have raised the most serious concerns. Cases against entities such as Ripple, LBRY And Coinbase clearly shows that regulators are unwilling to work with the industry and only seek to crush it.
It is no secret that, as in most industries, there are entities acting maliciously and seeking to deceive and defraud in the digital assets space. However, these actors remained shielded from the SEC’s regulatory hammer, while legitimate companies legitimately trying to comply were targeted with costly lawsuits.
These enforcement measures have left industry players questioning whether they can trust the U.S. regulatory environment and have highlighted the need for clear, well-defined regulations to prevent this growing industry from going offshore.
It’s essential to recognize that the crypto industry, like any other sector, has its share of bad actors, but punishing those who genuinely seek to comply with the law only muddies the waters and discourages responsible innovation.
Recently, things have started to move in a promising direction. Many of the problems the industry has faced stem from an SEC that is clearly looking to expand its jurisdiction and lawmakers who are unwilling to understand the meaning of this new technology.
Today, the SEC is defeated, both in court and in the court of public opinion. After a massive victory by Ripple against the SEC on summary judgment, the SEC filed an appeal that was largely rejected by the court. This pair of losses essentially destroys the SEC’s legal strategy and is a clear sign to the agency that its philosophy is misguided at best, or malicious at worst.
The SEC has also been tripped up both by its filings in the Coinbase case and by congressional hearings. In the Coinbase lawsuit, it attempts to claim that crypto tokens have no inherent value, which as a general statement is undeniably false. Coinbase General Counsel Paul Grewal said brushed this position as an old nonsense that the SEC has been working on for years.
At a recent regulatory oversight hearing featuring Chairman Gensler, Rep. Ritchie Torres (D-N.Y.) used his time to offer a series of very compelling questions using Pokémon cards to highlight the deliberate lack of clarity of the agency. “Suppose I had to buy a Pokémon card. Would this constitute a security transaction? » Gensler said. “I don’t know what the context is,” he continued, before admitting that it’s not a value if purchased physically.
Rep. Torres then asked, “If I were to purchase a tokenized Pokémon card on a digital exchange via blockchain, is that a security transaction?
“I would have to know more,” Gensler said.
Representatives like Ritchie Torres and current Acting Speaker of the House Patrick McHenry (R-NC) are good examples of lawmakers who have become familiar with the digital asset space and have taken the necessary steps to attempt to create legislation on this subject.
These industry allies are clear beacons of the long-awaited legal framework that appears closer to reality than ever.
Although the state in which this industry currently exists in America is far from ideal, and certainly far from clear, it is clear that the road to legal clarity and adoption of new technologies is long and perilous.
It takes time and effort, education and funding, and, above all, unwavering commitment from passionate people dedicated to innovation. Although the last few years have been beyond frustrating, it is clear that as long as we continue to build smart and work hard in public policy, we will soon see the fruits of our collective labor.