Crypto Regulation: Is Cryptocurrency A Security?

Is Cryptocurrency Safe? Forbes Consultant

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The Securities and Exchange Commission (SEC) and other US market regulators are getting serious about controlling the cryptocurrency market.

But there is one big unresolved question central to their goals: Is cryptocurrency safe?

The latest cryptocurrency halving belies the dilemma: Currencya deliberate choice by the founders of the movement, confirming their ambition to replace paper currency as a store of value and a medium of exchange.

It’s fair to say that since the launch of Bitcoin (BTC) in January 2009, crypto has become the “wild west” of financial markets. In the past, its decentralized nature kept it out of the eyes of governments and other regulators.

Crypto’s lack of censorship is something that convinces a lot of enthusiasts. But with little regulation in place, the doors are wide open for nefarious actors who take advantage of gullible investors.

The May crash of the stablecoin TerraUSD wiped out more than $600 billion in value and triggered a wave of bankruptcies — not to mention deepening the crypto winter. The Biden administration has responded by defining a framework for cryptocurrency development that includes nods in the direction of crypto regulation.

Let’s take a look at the state of play in crypto regulation – and see if we have a clarification on whether cryptography is security.

SEC’s Gensler believes cryptocurrencies are securities

SEC President Gary Gensler has expressed his dissatisfaction with the current state of crypto regulation at the register

Gensler famously said in June that cryptocurrency exchanges that do not cooperate with the SEC are “operating outside the law” and may be at risk of enforcement action.

At the heart of Gensler’s speech to make the Securities and Exchange Commission mayor of cryptocurrencies is the argument that cryptocurrencies are securities.

But what are securities? The Securities Act of 1933 and the Securities Act of 1934 define the definition of securities in painful details. But a more useful clue can be found in the Howey test.

Howey’s test comes from the 1946 Supreme Court ruling in SEC v. W. J. Howey Co. , which has been reconfirmed in the courts several times. Under the Howey test, a transaction is considered a security if it meets the following four criteria:

  • The money is invested.
  • There is an expectation that the investor will make a profit.
  • Investing in a joint venture.
  • Profits are generated through the efforts of others.

Gensler said in September 8 statement.

In his recent appearance on CNBC, he reiterated his case for cryptocurrency. The law is clear. I believe that based on facts and circumstances, most of these tokens are securities.

This means that those cryptocurrencies must be registered with the Securities and Exchange Commission under the federal securities laws.

The Securities and Exchange Commission has cracked down on cryptocurrencies

The SEC announced in May that it was doubling its crypto-asset unit and e-unit in May. Since then, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Department of Justice (DOJ) have become more active in implementing crypto. Take a look at some of our laundry fee lists:

  • On September 19, the Securities and Exchange Commission (SEC) accused crypto influencer Ian Ballina of failing to disclose compensation he received from promoting the sale of Sparkster’s unregistered crypto assets.
  • On September 22, the CFTC settled the charges against bZeroX and its founders for breaching the Commodity Exchange Act (CEA) and CFTC regulations.
  • On September 28, the Securities and Exchange Commission charged The Hydrogen Technology Corp. and its ex-CEO of the unregistered sale and stock price manipulation of crypto-assets.

Bloomberg reported that the Securities and Exchange Commission was investigating popular crypto exchange Coinbase (COIN) for allowing users to trade unregistered securities. The Securities and Exchange Commission (SEC) has also filed an insider trading complaint against a former Coinbase product manager that has designated nine cryptocurrencies as securities, and Coinbase insists it does not list the securities.

Two additional cases have been particularly notable in recent regulatory crypto enforcement actions.

Beautiful Kim Kardashian SEC

In early October, reality TV star and social media influencer Kim Kardashian agreed to pay a $1.2 million settlement to the Securities and Exchange Commission (SEC) linked to accusations that it failed to disclose compensation it received for promoting the EthereumMax crypto asset on Instagram in June 2021. The Securities and Exchange Commission (SEC) fine. Four times more than you achieved from the promotion.

Depending on the punishment imposed on Kardashian, the Securities and Exchange Commission may be more interested in seeing their crypto campaigns.

Ripple and SEC

Another major crypto-related regulatory battle is taking place in the courtroom between the SEC and Ripple (XRP) over the sale of the cryptocurrency XRP.

The Securities and Exchange Commission (SEC) has filed charges against Ripple, alleging that the company’s XRP sales were illegal securities offerings and that they “raised more than $1.3 billion through an unregistered and ongoing offering of digital assets.”

Ripple disputes this accusation, claiming that XRP is a virtual currency rather than an investment contract, and thus is not subject to the SEC’s securities laws.

Gordon Allot, CEO of BroadPeak Partners, says the Ripple case must be settled soon and that facing the SEC is an uphill battle. “What you do with cryptocurrency can turn it into security. If you use the crypto-issue to fund your operations, it will get the attention of the SEC.”

Crypto and stock law

Attorney William Powers, a partner at Nossaman, said the Congressional Knowledge Stop Trading Act of 2012, otherwise known as the Stock Act of 2012, could provide crypto investors with insight into the position of Congress on the issue.

The Stock Act of 2012 requires all members of Congress to publicly disclose transactions of “stocks, bonds, commodity futures, and other forms of securities” within 45 days on their websites.

Ethics guidelines in the US House of Representatives and the US Senate explicitly call on members of Congress to disclose cryptocurrency transactions, apparently indicating that they are classified under stock law as “other forms of securities.”

Several members of Congress later disclosed their crypto trading.

Powers said the disclosures make clear that “there appears to be a consensus” that cryptocurrencies are a type of security covered under stock law, at least when it comes to trading by members of Congress.

Future SEC Regulations for Cryptocurrency

For now, the future of US crypto regulation is still in the air as regulators continue to investigate the market and determine the best path forward.

The US Treasury is expected to complete an “Illicit Finance Risk Assessment” on decentralized finance (DeFi) and non-fungible tokens (NFTs) in early 2023. Meanwhile, Gensler asked SEC staff to “adjust compliance with cryptographic token security.”

But more regulations may not necessarily be bad for crypto investors, say some experts.

“Having crypto-specific regulations means that projects, exchanges, and all crypto-related businesses are subject to higher standards and are therefore beneficial to investors. In addition, it protects the interests of investors, and allows legal recourse against fraud and crypto-projects that violate these regulations.”

But Jeremy Wagner, financial analyst at Trading Pedia, says crypto regulation will also cost crypto enthusiasts. “More regulation could also lead to more restrictions on how cryptocurrencies are bought, sold and used. In addition, regulation may make it more difficult to launch new and innovative ventures in the crypto space.”

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