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Deliberating on Crypto Regulations in the US
Coinbase, the well-known crypto exchange, has been engaged in a protracted battle with the United States Securities and Exchange Commission (SEC) for over a year. This has been in an effort to secure definite rules around digital assets. Coinbase's initial petition from July 2022 went unanswered, leading to a secondary filing in the U.S. Court of Appeals in April. This petition criticized the SEC's unwarranted delay in taking action.
The U.S. Chamber of Commerce (USCC), the largest lobbying group in the country, has shown considerable support for Coinbase’s petition. The USCC, in its friend of the court brief dated May 9, 2023, expressed concerns about the unclear status of digital assets as 'securities' under federal law. This ambiguity poses significant challenges to the crypto industry, which is now worth a trillion dollars. The USCC further expressed the firms' desire for regulatory clarity given their compliance with U.S. securities laws.
The SEC's Stance and Concerns from the Crypto Council
The SEC, despite positioning itself as the primary regulator of digital assets, has been reticent in clarifying the status of these digital assets. This has led to criticism, with the Commission's reliance on individual enforcement actions, public speeches, and statements being deemed "confusing, unhelpful, and inconsistent".
This ambiguity has led to criticism from the Crypto Council. The Council voiced its concerns in May over the SEC's adoption of 'regulation-by-enforcement', which could stifle innovation and investment in digital assets.
The Uncertainty Around Crypto Regulations in the US
This regulatory conundrum has raised important questions. Could the U.S.'s lack of regulatory clarity push crypto innovation to foreign shores? Could the regulatory practices of the European Union or Switzerland offer any lessons? Is the SEC solely to blame or is it just struggling to deal with a legislative void?
Carol Goforth, Distinguished Professor at the University of Arkansas Fayetteville, pointed out that the lack of clarity around digital asset regulations could potentially discourage businesses from operating in the U.S. Congress's inaction on this matter has left the SEC with limited options in regulating this space.
A Global Perspective on Crypto Regulation
Unlike the U.S., several countries have already offered clear guidelines for the operation of digital asset companies. These include the European Union, Switzerland, Singapore, the United Kingdom, Japan, and the Cayman Islands.
The European Union, for instance, has provided a clear framework that classifies digital tokens into payment tokens, security tokens, and utility tokens. Daniel Schoenberger, Chief Legal Officer at the Web3 Foundation, applauded this approach, stating that it brings legal certainty and could potentially attract industry startups to the region.
The Need for Clear Compliance Path
Despite the challenges, a portion of the U.S.-based crypto firms are already complying with existing laws and regulations. The Financial Crimes Enforcement Network (FinCEN), along with state financial services agencies, provided initial guidance for crypto participants.
However, there is still a need for clear compliance pathways. SEC's regulation-by-enforcement approach is seen as a deterrent to innovation. Countries that have provided clear guidelines have shown that there are various use cases for tokens, and not all are financial in nature.
Looking Forward: The Future of Crypto Regulations in the US
While the regulatory environment in the U.S. is complex, there are lessons to be learned from European counterparts. The lack of comprehensive federal legislation on digital assets in the U.S. might not be resolved soon, but there is a possibility of piecemeal legislation that targets specific aspects of the crypto sector. This approach could serve as a stepping stone towards a more comprehensive framework.
