Shark Tank billionaire investor Mark Cuban recently shot back against Securities and Exchange Commission (SEC) chair Gary Gensler’s latest anti-crypto missive.
Writing in the Wall Street Journal, Gensler reiterated his long-held contention that digital assets are fundamentally no different to the rest of the capital markets when it comes to securities law.
“We can dispense with the idea that crypto lending isn’t subject to regulation,” said Gensler. “On the contrary, the rules have been around for decades.”
There’s no reason to treat the crypto market differently from the rest of the capital markets just because it uses a different technology…
Read my recent Op-Ed:
— Gary Gensler (@GaryGensler) August 22, 2022
To Gensler, the fact that we're talking about digital assets as opposed to traditional assets, is missing the point.
“Bob can’t avoid complying with these time-tested investor protections by sticking a label on the product or on the promised benefits,” he stated, using a hypothetical situation.
Except there’s nothing hypothetical here; crypto lenders have – and continue to – provide borrowing and lending products indistinguishable from traditional finance (TradFi) institutions in all but the underlying asset itself.
But “it doesn’t matter what kind of asset Alice put into Bob’s app—cash, gold, bitcoin, chinchillas or anything else,” reckons Gensler.
Clearly referring to securities law, he went on: “It’s what Bob does that determines what protections are provided by the law.”
If you don't know what to do, come in and have a chat!... seemed to be Gensler’s suggestion.
That’s when Cuban took umbrage and stepped in.
Come in and talk to who ? Set up an appointment how ? You using Calendly these days ? Since you understand crypto lending/finances, why don't you just publish bright line guidelines you would like to see and open it up for comments ? https://t.co/N3KQAnutl9
— Mark Cuban (@mcuban) August 22, 2022
“Come in and talk to who? Set up an appointment how?” he queried.
Sarcastic though his comments were, they raise a good point that the SEC, regardless of its stance on how securities laws should apply, has yet to give clear guidance as to how crypto platforms, including exchanges, can fundamentally adhere to them.
Furthermore, the question of whether crypto assets are securities or not is still an open book.
Security, commodity, or something else?
Georgetown University’s succinct description of a security is: “An investment in a business. It can take the form of shares of stock, bonds, a package of loans or mortgages offered for sale by a financial institution or a financial instrument representing investment in a company or an international project.”
Does that fit the description of, say, Cardano’s ADA token?
If so, what does the token buyer get in return for his or her investment in Cardano, beyond speculating on its market value?
True, ADA holders may delegate their tokens to a staking pool and earn rewards, but this is on a purely voluntary basis, so how could the SEC monitor such a situation?
And what about truly decentralised cryptocurrencies without any institution or enterprise behind it, the most obvious being Bitcoin?
For its part, the SEC happily agrees that Bitcoin acts more as a commodity than a security, but its leniency has not extended to other payment tokens, most obviously XRP by Ripple Labs, whom the regulator has been locking legal horns with for the past few years over what it sees as an unregistered security.
The SEC likes to talk in absolutes, but it is just one regulator with an opinion on the matter.
The Commodity Futures Trading Commission (CFTC), an independent agency of the US government, also has a stake in cryptocurrency regulations, and it doesn’t quite share the same uber-hawkish attitude of the SEC.
While the CFTC has signalled its interest in working alongside the SEC to create coherent regulation, CFTC Chairman Rostin Behnam has also laid a claim to jurisdiction.
In a July 25 keynote address, Behnam said: “While we cannot predict any legislative outcomes, the CFTC will continue to aggressively and relentlessly press forward in the digital asset commodity space within its historical remit.
“I will ensure that the CFTC continues to use our existing enforcement authority to its fullest extent in the digital asset commodity space to protect customers from fraud and manipulation.”
Behnam did, however, concede that there are “several unique elements of the digital asset commodity cash market that distinguish it from other cash commodity markets,” most notably the high levels of retail investor participation and concurrently, a lower barrier to entry.
CFTC gets cross-bench support
The CFTC is not believing it merits regulatory oversight of digital assets.
The cross-party Digital Commodities Consumer Protection Act introduced to the Senate on August 3 aims to do just that.
The bill would give the CFTC greater jurisdiction over crypto spot markets.
While the SEC is seen as a villain among the crypto community, the bill was actually met favourably among the crypto community, not least by Coin Center, a leading non-profit focused on the policy issues facing cryptocurrencies... though it still expressed some concerns of overreach.
Perhaps anything to stem the SEC’s advances is seen as the lesser of two evils.
Undoubtedly the smaller fish in the cryptoverse would be most eager to put the cork in the securities law bottle, given that laborious and expensive compliance requirements would hit them the worst.
All in all, the regulation debate is probably not going anywhere for a long time.
Hell, we can’t even agree on a single definition yet.