Crypto-enthusiasts have always reiterated that the current securities law, primarily the ‘Howey Test’ is inadequate to define things for cryptocurrencies. Some also expected a change in the ‘securities law’ to accommodate cryptocurrencies. However, in a recent interview, Jay Clayton, the SEC Chairman said that,
“Just to be clear, I am not looking to expand the securities laws to capture things,’’ he added, “I am generally not in the law-expansion business. But I am not in the head-sticking-in-the-sand business either.”
After effectively cracking down on ICOs, the Governments now have a bigger job at hand to regulate the cryptocurrencies in the market and set future precedence for plans like Libra.
In the two day Senate hearing with David Marcus, the House of Finance Committee had noted that Libra might be regulated as an ETF. This is because just like an ETF it is backed by other assets and is transferable.
However, David suggested that since it is not an investment product, it should not be regarded as security. Nevertheless, investment or not, Libra will be vulnerable to price change which will be managed by the Libra backers. Clayton noted,
If we have a way to reduce the cost of payments internationally, through technology, I am all for it,’’ he said. “But you can’t sacrifice basic principles of securities law, and other law, to allow it to happen.’
Hence, if Libra is regulated as a security, it will have to comply with the rules of international transfers and surveillance on ETFs. Clayton and the other members have concluded that many ICOs may fall under its purview. That said, the SEC is not totally against innovation. Whether Libra will be one of them is still not confirmed.
Laws to Protect Investors’ Interest
The ICO mania in 2016-17 drove crypto-investments into a state of hysteria. However, in hindsight, the proposed whitepaper was just a medium for raising money or crowdfunding. The amount raised by some of these ICOs was in billions.
The idea of a technological revolution in the crowdfunding space in alluring. The investors are duped into believing astronomical growth of their money. It was perceived that a new financial age is dawning upon us. However, looking back, most of the ICOs are underwater now.
The laws that have been designed to protect investors from these schemes. However, it has been able to protect the interest of investors over the past 85 years and Clayton argues that it will continue to as well. He said,
I think a lot of people got excited that somehow we would change the rules to accommodate the technology and they invested their time and effort thinking that would happen. I have been pretty clear from the start, that ain’t happening.’
The stablecoins are now posing threat to Central Banks. Moreover, Libra’s announcement has already created a lot of stir about cryptocurrencies in the market. And the SEC does not intend to provide fuel to it. However, he suggested the international and domestic regulators might look to include crypto as an up-gradation in their laws.
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