The SEC’s stance on crypto regulation has been seen by many as a roadblock to the wider adoption of cryptocurrencies. Chair Gensler has proposed several steps to reform cryptocurrency regulations to address this issue. However, as more investors enter the crypto space, it’s become increasingly important to understand what the SEC says about these digital assets and how that might affect your investments. So let’s look at what investors need to know about the SEC vs. crypto debate.
The SEC’s Definition of Cryptocurrency
When discussing the SEC vs. crypto, the first thing to consider is understanding how the agency defines cryptocurrencies. According to the SEC’s website, "the SEC considers digital assets issued through distributed ledger technology (DLT), such as blockchain, to be securities under the federal securities laws unless a valid exemption applies or they are not considered ’securities’ under existing law (for example, A bond). The Howey Test has been used by the US Supreme Court to define what constitutes a security. An asset or transaction must meet all four criteria outlined in the test to be considered a security. Firstly, money needs to be invested in some form of property, goods, services, or even another individual’s enterprise. Secondly, there must be a reasonable expectation from the investor that they will earn a profit from the investment. Thirdly, the investment must involve a common enterprise - meaning that profits are generated through the efforts of more than one person or group. Lastly, any profits generated by the venture must come from the efforts of others and not just those of the individual investor.
In other words, most cryptocurrencies are considered securities by default, meaning they must comply with all applicable laws and regulations before they can be traded on exchanges or sold to investors. This is why many crypto platforms have had to register with the SEC as a broker-dealers or security dealers and why they are subject to greater scrutiny. Understanding the SEC vs. crypto debate can be confusing for investors, but it’s important to know how their rules apply to your investments to stay safe. By understanding the SEC’s definition of cryptocurrency and adhering to the applicable regulations, you can enjoy a secure and successful investing experience.
How This Might Affect Your Investments.
Having cryptocurrency regulations in place would mean that projects, exchanges, and all cryptocurrency-related businesses are held to a higher standard and as such, are beneficial to investors. Additionally, it protects investors’ interest, allowing for legal recourse against crypto scams and projects that breach these regulations," says Bobby Ong, co-founder and chief operating officer of CoinGecko.
