Securities laws are designed to protect investors from fraudulent or manipulative practices and to provide investors with the information necessary to make informed investment decisions.
Since the Securities and Exchange Commission (SEC) was established in 1934, the Commission has been tasked with a three-part mission: protecting investors; maintaining fair, orderly, and efficient markets; and facilitating capital formation. Since 2018, the SEC has spent substantial time and resources on important questions about how the securities laws apply to the crypto ecosystem. Many of these questions are complex and difficult, especially because the securities laws — which generally mandate the presence of intermediaries — are a poor fit for crypto, which has decentralization and disintermediation at its core.
Unfortunately, many of these questions remain unanswered. One issue that has created significant confusion is whether and when digital assets constitute “investment contracts” and therefore should be regulated as securities. The SEC has not given guidance on this issue since 2019, instead resorting to a practice known as “regulation by enforcement,” in which the SEC has accused upstanding US companies of securities violations without adequately explaining its views on the law.
In addition to uncertainty regarding which assets are classified as securities, there are many other unresolved issues related to how the securities laws apply in the crypto context. For example, the SEC has refused to approve applications from registered securities exchanges to list a spot bitcoin exchange-traded product (ETP) despite approving bitcoin futures ETPs. Similarly, the SEC has refused to approve any broker-dealer applications filed by companies that wish to offer regulated services related to digital asset securities. We support policies that clarify rather than confuse the application of existing laws, as well as policies that embrace rather than reject the unique nature of crypto through the development of new, tailored rules and requirements.
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