Blockchain-based decentralized networks do not fit “neatly” within the Securities and Exchange Commission’s existing regulatory framework, said Commissioner Hester Pierce.
During an event held at the University of Missouri School of Law, Pierce delivered a keynote addressing how nascent technology like Bitcoin could fit inside the framework of traditional laws, underscoring the importance of amending prevailing federal laws to govern new technology protocols.
As Pierce underscored:
“Yet many of these projects begin in a centralized manner that looks about the same as any other start-up. A group of people gets together to build something, and they need to find investors to fund their efforts, so they sell securities, sometimes called tokens. The SEC applies existing securities laws to these securities offerings, which means that they must be conducted per the securities laws or under an exemption.”
In the last year, the securities watchdog has been stepping up its efforts to crack down startups purportedly offering “unregistered securities.” In 2018, ICO firms Paragon and Airfox have been charged by the SEC after raising $12 million and $15 million, respectively. In 2017, the securities regulator has shut down Munchee, a California-based startup that previously launched a $15 million token sale.
While the crackdown has effectively eradicated a significant number of fraudulent projects, it has also adversely impacted startups that provided legitimate platforms.
Explaining how antiquated securities laws prevent genuine projects from proceeding, Pierce further detailed:
“One cryptocurrency project, Basis, has announced that it will shut down operations and return $133 million in capital to investors due to the difficulty—if not impossibility—of complying with securities regulations given the team’s vision for the project.”
While Pierce underscored the lack of appropriate laws for governing nascent technologies, she did recognized the efforts of lawmakers in weeding out legitimate ICOs from a slew of fraudulent ones, lauding Congressmen Warren Davidson and Darren Soto for introducing a legislation in the US Congress’ lower chambers, in an effort to amend prevailing securities laws, adding that:
“Such an approach would facilitate a more tailored disclosure.”
In addition to discussing nascent technologies in relation to existing laws, Pierce also provided insights on the SEC’s approach to Bitcoin-based exchange-traded funds (ETFs). As she went on explaining, the commission is looking into adopting the views of potential investors of the emerging market, conceding that the merit-based regulatory approach may not necessarily be applicable to the industry.
As Pierce added:
“We rightfully fault investors for jumping blindly at anything labeled crypto, but at times we seem to be equally impulsive in the running away from anything labeled crypto. We owe it to investors to be careful, but we also owe it to them not to define their investment universe with our preferences.”
As it would appear, however, Pierce’s position on the approval of a potential Bitcoin ETF is somewhat pragmatic. Last week, SEC Commissioner Robert J. Jackson Jr. also acknowledged that the approval of a Bitcoin ETF is inevitable.