Biden and Trump SEC Chiefs Trade Advice on How to Regulate Crypto

Regulators on the left and right rarely agree on policy. Yet when it comes to cryptocurrency, two men who headed the Securities and Exchange Commission are remarkably aligned: the technology and the offerings may be new, but the old rules still apply.

Jay Clayton, the Republican chairman of the SEC under President Donald J. Trump, interviewed Gary Gensler, the current SEC chief in the Democratic Biden administration, on Wednesday at the Digital Asset Compliance and Market Integrity Summit At New York.

Mr. Clayton now advises crypto companies, and Mr. Gensler taught cryptography classes as a professor at the Massachusetts Institute of Technology before joining the agency. When Mr. Clayton asked his successor whether the SEC intended to regulate crypto, Mr. Gensler replied, “I don’t think you mind if I quote you back.”

Mr Gensler then expressed the view that the former president has long explained – which blockchain companies strongly resist – that cryptocurrency tokens are “widely” used to raise funds for entrepreneurs and , as such, meet “the proven definitions of an investment contract and are therefore subject to securities laws.

Indeed, Mr. Clayton didn’t care and added, “Yeah.” And any other of the range of definitions of a title in addition.

Their agreement on this matter is important because it suggests that many, if not most, crypto issuers are breaking the law by not registering with the SEC and could be subject to enforcement action. And a pending case can resolve this issue.

At the end of Mr. Clayton’s tenure at the agency last year, SEC sued Ripple Labs and its founders, accusing them of raising more than $ 1.3 billion through an unregistered and continuing offering of digital asset securities through the sale of their tokens, known as XRP.

Not all cryptocurrencies are security – it has been established. The original crypto, Bitcoin, for example, is considered a commodity in the United States because there is not a single individual or entity. hit the chips. Instead, a decentralized network of powerful, independently managed computers vie for the opportunity to “mine” Bitcoin and win a portion for the work of algorithmic solving mathematical problems.

The SEC argues, however, that because Ripple Labs sold XRP to raise funds for its payment products and its exchange, investors needed information about the business and operations of the company so that they could make informed decisions. as to whether or not to purchase the token.

Neither Mr. Clayton nor Mr. Gensler cited the case in their discussion, but its implications loomed over the conversation.

Both spoke at length about the information asymmetry between insiders and investors when companies raise funds through unregistered tokens. The registration aims to address this imbalance by requiring certain disclosures, they said, and crypto markets will not thrive if companies operate outside the regulatory framework.

As he has done before, Gensler warned that there would be “a spill in Alley 3” and the public would question why authorities did not act more quickly. The “spill” could be the result of instability triggered by the boom in crypto lending or the use of “stablecoins” – cryptocurrencies ostensibly tied to a stable asset like the dollar, which have so far come to the fore. now proven not always to be supported by the quality or quantity of reserves claimed by some issuers.

Or, he added, “it could simply be that a large part of the investing public is harmed either by scammers or by bona fide actors who promote and fundraise” without giving to investors “full and fair information”.

For crypto enthusiasts watching the discussion online, the alignment between regulators was an obvious source of frustration. In the comments, many have called for their incarceration or worse. While it was any consolation that Mr Gensler and Mr Clayton also noted that crypto and its associated innovations held promise, the comments did not reflect it.

But Mr Gensler’s last thought for the public – whom he called lawyers, accountants, advisers, consultants and technologists – was that innovators and those who support them have a role to play in securing success. market integrity. He concluded: “I ask you to think about the public interest.


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