The cryptocurrency industry has not been shy about expressing its displeasure with outgoing Securities and Exchange Commission Chairman Gary Gensler’s strict enforcement of digital currencies. And with President-elect Donald Trump returning to the White House and cryptocurrency-friendly Paul Atkins being named the next chairman of the SEC, the industry isn’t hiding its excitement either.
Republican SEC Commissioner Hester Peirce and crypto industry lawyers shared their hopes for a friendlier crypto market and a less enforcement-focused Trump administration during ‘a panel discussion Friday at the American Bar Association’s Federal Securities Regulation meeting in Washington.
“I look forward to providing more clarity where we can provide more clarity,” Peirce said, “keeping in mind that we are a regulatory agency with an enforcement body, not a enforcement agency that does not have a regulatory body.”
Dalia Blass, a partner at Sullivan & Cromwell and former director of the SEC’s investment management division, said Atkins “is going to make digital assets truly accessible to U.S. markets in a way that makes sense.”
Sidley Austin partner Jay Baris said, “I think (Atkins) will be very receptive to innovations and initiatives, and he will keep the door open and listen, because he understands the space. Baris added: “I see good things coming out of this, consistent with investor protection. »
Panel members agreed that the current regulatory regime regarding cryptocurrencies is insufficient and outdated.
A main question for the SEC is how to apply securities laws to digital assets or whether the laws apply at all. Under Gensler, the SEC relied on the U.S. Supreme Court’s decision. Howey test to determine whether an investment contract should be regulated as a security.
Katrina Paglia, legal director at crypto hedge fund Pantera Capital, said it was unclear how the Howey The test is interpreted by regulators as it applies to cryptocurrencies. She emphasized that the 1946 decision SEC v. WJ Howey Co. concerned the orange groves of Florida.
“Logically, how can this be something that makes sense for a blockchain technology or a digital asset today?” she said. “The current situation is clearly not sustainable.”
The regulatory regime should provide an “exit door” for a digital asset to move from being a security in the early stages of a company’s development to becoming a commodity, but the current regulatory structure does not provide for this, a added Paglia.
“Everyone wants regulation,” she said. “We just need to be clear how much of a safety you are and how much of a commodity you are and what you need to do to get there. I think the industry would appreciate that.
Peirce proposed a “Token Safe Harbor” in 2021 that would have given crypto developers a three-year grace period while being “exempt from the registration provisions of the federal securities laws.”
Peirce said this would allow crypto companies to move out of a securities regulatory structure before ultimately being “handed over to the CFTC (Commodity Futures Trading Commission) where I think they are a better fit.”
“We need to remember that cryptography and the technology behind it will likely be used in many areas of our lives,” Peirce added. “But whatever we do, we need to make sure that it doesn’t confine everything to the financial regulatory structure.”
Blass said all the focus on regulatory jurisdiction is a distraction and stifles an industry with high market demand.
“This is a promise of technology that can really evolve our financial markets and disrupt our financial markets in a really good way,” she said. “And instead of focusing on that, we’re focusing on which agency has which piece of the pie here. Like we’re doing this market a disservice by having that focus.
