The SEC’s Cryptocurrency Confusion – WSJ

Cryptocurrencies are a new force in financial markets, but their emergence follows an old pattern, for better or for worse. A move was taken on Wednesday to institutionalize their trading in the $ 86 billion public offering from Coinbase, the largest U.S. cryptocurrency exchange. However, regulators pose a threat to currency developers and retail investors.

The uncertainty is evident in the case of the Securities and Exchange Commission against Ripple Labs, an issuer of digital currencies. The SEC accused Ripple in December of issuing $ 1.3 billion in unregistered securities based on the company’s initial offering for its currency in 2013. The agency says Ripple’s efforts to promote its product are off To profit, qualify the currency as collateral, subject to the restrictions that govern the sale of stocks.

However, the judicial findings during the discovery phase of the lawsuit highlighted the inconsistency of the SEC’s approach. In March, federal judge Analisa Torres told attorneys that Ripple “has a use” and questioned the SEC’s view that the tokens are primarily a claim to future profits. And last week, Judge Sarah Netburn granted Ripple access to the SEC’s discussions on Bitcoin and Ether, the two largest cryptocurrencies the agency sees as exempt from its rules.

The SEC believes that Bitcoin and Ether are not securities, partly because their developers do not benefit from their sale. However, these exemptions were heralded by statements made by former SEC chairman Jay Clayton in 2019 and 2020 with no formal rules in place. The results of Judges Torres and Netburn in the Ripple case suggest that the agency has not established clear rules for which currencies it regulates and which not.

This confusion carries risks for investors. Coinbase delisted Ripple after the SEC filed suit in December, resulting in a sell-off that wiped out more than 60% of its value. The prices for Ripple and similar currencies have since compared with the statements of the court on the case of the SEC. U.S. participants in the $ 2 trillion cryptocurrency market are seeking clarity that the agency does not want to provide, preferring to make their positions known through individual enforcement actions.

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