When the U.S. Securities and Exchange Commission publishes anything related to the cryptocurrency space, the industry immediately pays attention. However, a highly-touted guidance document from the regulator in regards to blockchain and ICOs is shaping up to be seen as a case of nothing to see here.
SEC Publishes Guidance for Crypto Sales
On Wednesday, the SEC released a statement outlining its new “Framework for ‘Investment Contract’ Analysis of Digital Assets," a product of its Strategic Hub for Innovation and Financial Technology (FinHub).
FinHub is designed to help players in the fintech space.
The latest comments were crafted by Bill Hinman, the director of Division of Corporation Finance and Valerie Szczepanik, senior advisor for Digital Assets and Innovation, who stressed that the framework is not supposed to be an exhaustive overview of the law.
It's just an "analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset."
In the framework (reproduced below), the SEC also chimed in about blockchain to say it “can catalyze a wide range of innovation.”
Furthermore, the Division of Corporation Finance recommended that the SEC not pursue enforcement actions against an unregistered token sale.
SEC Document Disappoints Crypto Insiders
Though an important start toward regulating the crypto industry, the framework contained precious little information about how the SEC plans to be more active in regulating the space. Instead, it highlighted the obvious and further obscured what was not. The release states:
"As financial technologies, methods of capital formation, and market structures continue to evolve, market participants should be aware that they may be conducting activities that fall within our jurisdiction."
It didn’t take long after the SEC’s release for crypto lawyers to begin shredding any crypto industry euphoria.
Take these tweets from Preston Byrne, who lambasted it as a "legal...nothingburger[.]"
Anyway. tl;dr, the SEC doc and the no-action letter are, legally speaking, nothingburgers. What these documents tell us is that the Commission understands the issues and is unlikely to be swayed by technobabble.
— Preston Byrne (@prestonjbyrne) April 3, 2019
Marco Santori was far more prolific in his tweeting about the release. He lamented:
"The SEC promised guidance that would aid entrepreneurs in determining what tokens are securities, then published guidance saying 'If it makes sense to use a token, it's probably a security...'"
"Because the no-action letter and the framework each contain "no-transferability" caveats, I don't immediately see how this advances the discussion or gives clarity to any entrepreneur who really needed it. Bummer."
12/ The transferability prohibition seems as deeply-engrained in this analysis as the functionality requirement is. Transferability, specifically interoperability, is a touchstone of these networks - and the ERC-20 standard in particular.
— Marco Santori (@msantoriESQ) April 3, 2019
Don’t Hold Your Breath Waiting for the SEC
CCN has continually reported on the SEC being slow to address crypto-related issues. The best example is its failure to give a green light for the first bitcoin exchange-traded fund (ETF). Investors have been anxiously and patiently waiting for this to happen for years.
The recent announcement that it was on the hunt for a crypto specialist attorney was seen as a smokescreen by many. CCN reported that it’s comforting to see the agency dedicating resources to the future of bitcoin and blockchain. However, these developments have yet to result in any real progress toward regulatory clarity.
Crypto founder David Siegel recently told CCN he blamed the SEC for stymieing innovation by not moving on crypto-related issues.
“Building projects in crypto and blockchain is a lot like building projects in the regular business world. One of the biggest challenges we have is finding top coders. Cryptographers are easy to come by these days, but top-tier coders remain scarce.”
Read the SEC's full DLT framework below: