More than 50 stakeholders from the cryptocurrency and finance industries this week met with U.S. lawmakers in Washington to discuss the future of blockchain regulations in the country.
The roundtable, which took place at Capitol Hill at the behest of Rep. Warren Davidson (R-OH), saw attendance from the representatives of industry heavyweights including Coinbase, Kraken, Nasdaq, Andreessen Horowitz, State Street, ConsenSys, Fidelity, and the U.S. Chamber of Commerce. The message from most visitors was loud clear: lawmakers should intervene to bring more clarity to crypto regulations, or blockchain innovators will be forced to leave the country.
A New Asset Class against Old Rules
According to CNBC's summary of the summit, the panelists criticized the Securities and Exchange Commission (SEC) for defining a new asset class like cryptocurrencies after taking cues from the outcome of a 72-year old case. The 1946 Supreme Court decision SEC v. Howey Co. held that the offer of a land sales and services would qualify as "investment contracts." The SEC applies the same "Howey Test" to cryptocurrency distributions and initial coin offerings (ICOs), marking many of them as securities in the eyes of the law.
As a result, young startups in the U.S. waiting to launch blockchain assets stand confused about their compliance status. Most of them desire to issue utility tokens, cryptocurrencies that would be used to purchase or sell assets within a centralized or decentralized platform. They do not possess an iota of usability a security token should possess, industry representatives said. The visiting group questioned whether they should be brought under the U.S. securities framework at all.
Legal Actions amidst Unclear Regulations
As uncertainty deepens, the SEC has also mounted its crackdown against some domestic crypto companies. While some of them are indeed outright frauds, many small companies get fined for smaller violations, such as not registering with the SEC. The concrete legal actions against crypto companies that are already working in the gray areas could encourage them to move to foreign jurisdictions that seem more welcoming to their kind.
"If the rules are unclear, unwritten, or unknown it's not appropriate to punish people for making the wrong guess," said David Forman, the chief legal officer at Fidelity Investments.
Since bitcoin and other currencies are borderless and can be used and issued from anywhere in the world, moving a crypto-business abroad is not a difficult task, ConsenSys' Joyce Lai reminded lawmakers. Jesse Powell, CEO of cryptocurrency exchange Kraken, leveled up the argument by comparing what the U.S. is losing to what the rest of the world is gaining.
"Foreign companies [can] outraise their U.S. competitors and often whoever raises the most money is who wins," Powell said. "Not only are U.S. companies not able to raise enough to compete globally, [but] U.S. investors also are not able to invest in these global companies."
What Lawmakers Said
Rep. Davidson assured that the industry's views would encourage them to come up with a friendly cryptocurrency regulatory framework.
"Legitimate players in the industry have a desire for some sort of certainty so we can prevent and prosecute fraud," he said. "I'm confident we can move forward and make this a flourishing market in the U.S. It's imperative for us to do, we did it well with the internet."
Rep. Tom Emmer (R-MN), who has introduced multiple blockchain bills in the legislature this month, feared that they were running out of time to come up with a conventional regulation practice. His Democratic colleague, Darren Soto (D-FL), agreed.
He said, "I'm sensing we may need an entirely new category that treats this as a new asset so that we're not trying to squeeze a square peg into a round hole," adding that, "There needs to be some streamlining based on the definitions of digital assets."
Rep. Davidson said that he will introduce his crypto bill to Congress this fall.
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