> The primary purpose of the '33 Act is to ensure that buyers of securities receive complete and accurate information before they invest in securities. Unlike state blue sky laws, which impose merit reviews, the '33 Act embraces a disclosure philosophy, meaning that in theory, it is not illegal to sell a bad investment, as long as all the facts are accurately disclosed. A company that is required to register under the '33 act must create a registration statement, which includes a prospectus, with copious information about the security, the company, the business, including audited financial statements. The company, the underwriter and other individuals signing the registration statement are strictly liable for any inaccurate statements in the document. This extremely high level of liability exposure drives an enormous effort, known as "due diligence", to ensure that the document is complete and accurate. The law bolsters and helps to maintain investor confidence which in turn supports the stock market.
Crypto falls under regulation when regulators believe it falls within the scope of their regulatory obligations. Whether the code is open source is immaterial.
This is the result of the "code is law" gang running into the "law is law" gang.
Crypto falls neatly into either a securities or commodities basket from a regulatory perspective (depending on implementation), no new category required.
It seems, from a cursory glance, those asking for new regulation are asking for the avoidance of regulation, not similar regulation to other asset classes. That isn't regulation, and hence the tone of responses to these sorts of efforts by the crypto "industry". Even worse is the stance "our technology doesn't support regulatory intervention" (ie smart contracts that have no support for when regulators or the judiciary intervene).
The reason it's sometimes not clear, is because companies want to go right up to the line of 'crypto' without it actually being a security, in order to defraud people.
'Insider Trading' isn't always perfectly clear either, but it's really clear if you want to steer clear of it.
Is Bitcoin a security? How is something that is decentralized a security? If it was a security, should there be charges against Satoshi Nakamoto, who no one can reliably tie an identity to, and who might even be deceased? Or should the Bitcoin Core dev team be charged, in that case? Or should Bitcoin miners be charged? In my opinion, it's more nuanced than you make it out to be.
The way I'm interpreting what you are saying is that you would like if everyone would just abandon crypto and avoid it, because some / all of them could be considered a security (or because you and others don't like it, for other reasons, I'm not sure, exactly). The only way that it could be "clear" is if the SEC explicitly says which ones are securities, which has not happened, except for a few specific cases [1][2][3][4][5]. By the way, I'm for the SEC going after bad actors / scams, although I'm not convinced that that is what's happening with all of these cases, although perhaps some of them.
Anyway, since you mentioned companies, I'll give you the benefit of the doubt here, and I generally agree that crypto companies should maybe reconsider the position of skirting regulation. However, if we are talking about the crypto ecosystem as a whole, then I do not agree. I personally think this is new territory and crypto will play an important role in the future of our financial systems.
Reference [4] from my comment was about Kik. I think we agree there.
Also, FWIW, reference [2] from my comment was about Ripple / XRP, which I figured if any crypto project was a security, they were, since it was linked to a for profit company. I was not surprised to see that they were charged.
Anyway, I'd love for the SEC to say BTC is not a security, when asked a direct question about it, however, they have not yet, which is one of the reasons why I don't agree that the regulatory framework is clear, yet.
Ethereum also did an ICO so it probably was a security to start with (Gary Gensler said most ICOs are probably securities), but then Ethereum became decentralized enough, so then it's probably not still considered a security. So where do we draw the line for new projects? If they aren't prosecuted within a certain amount of time, then they are fine?
This is what I mean. It's a nuanced discussion. I don't think there should be scams, and it would be great if the regulators protected against bad actors. I agree that new projects should not market themselves like stocks / securities. However, in my opinion, not all cryptos should be considered securities. Based on all this, would you consider Bitcoin and Ethereum to be a separate class of assets? This is what I'm trying to get at. We can't group all crypto into existing securities laws. There probably should be regulation, but let's be clear about which ones are and which ones aren't. I have yet to see that clarity from US regulators.
Yes, they should provide guidance on BTC and probably should provide a bunch of test cases with clearer parameters. They're acting like Justices where they need to see the case, instead of providing exemplary framework for classification. Yes, I think in that case it's fair for them to be more proactive in delineating between groups.
It's a good point, and I think I would generally agree with this. I just wish the SEC was keeping up with technological innovation. At this point crypto is moving faster than they can keep up with, so I don't think they can accurately judge new crypto projects (or even older ones like Bitcoin and Ethereum), because they don't have the technical skill on their staff, or a modern regulatory framework, to understand and regulate it properly.
The Chair of the SEC taught crypto at MIT [1]. As much as the SEC needs to upskill, crypto needs to accept they are not going to replace the existing systems and they deserve no exceptions in regulation.
What we need is competition in rule making, generally. See "Rules for a Flat World"
I know who Gary Gensler is and I respect him for the teaching he did at MIT. I'm talking about the staff of the SEC as a whole. In my opinion, they are not moving fast enough or keeping up with technological innovation. I'm just wondering, have you read Gary Gensler's comments at the Aspen Security Forum [1]?
I particularly like this quote:
"Before starting at the SEC, I had the honor of researching, writing, and teaching about the intersection of finance and technology at the Massachusetts Institute of Technology. This included courses on crypto finance, blockchain technology, and money.
In that work, I came to believe that, though there was a lot of hype masquerading as reality in the crypto field, Nakamoto’s innovation is real. Further, it has been and could continue to be a catalyst for change in the fields of finance and money."
I have not read, but will look up, "Rules for a Flat World". Thank you for the reference.
> The primary purpose of the '33 Act is to ensure that buyers of securities receive complete and accurate information before they invest in securities. Unlike state blue sky laws, which impose merit reviews, the '33 Act embraces a disclosure philosophy, meaning that in theory, it is not illegal to sell a bad investment, as long as all the facts are accurately disclosed. A company that is required to register under the '33 act must create a registration statement, which includes a prospectus, with copious information about the security, the company, the business, including audited financial statements. The company, the underwriter and other individuals signing the registration statement are strictly liable for any inaccurate statements in the document. This extremely high level of liability exposure drives an enormous effort, known as "due diligence", to ensure that the document is complete and accurate. The law bolsters and helps to maintain investor confidence which in turn supports the stock market.