Crypto is being regulated. What does that mean?
Crypto assets when declared a security have to undergo some cumbersome procedures to go mainstream. Another hurdle to adoption.
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Coinbase warned by SEC of potential securities charges
“There isn’t enough room for the both of us”, says the Sherriff of the town to the blatant prince who aims to emancipate everyone from his atrocities.
Then again we dwell in the shadows of this dark and desolate valley succumbing under pressure and being submissive in everything thrown at us. The intruders are here and won’t stop until they find the weakest link in the chain.
First Silvergate then Signature, the regulators are stringent in choking off the supply of capital to the crypto markets. The previous month on March 22, 2023, Coinbase received a Well’s notice. A Well’s notice is basically a notification issued by the regulators that states that they will take civil action against the person or institution named in it and has 30 days to respond to why they shouldn’t proceed with such an action. A Well’s notice is a final step before the SEC issues formal charges.
So the SEC isn’t coming slow and is targeting some large names in the industry. Likes of which include Kraken shutting down its staking-as-a-service platform. Until and unless a regulatory framework is introduced in the US, these institutions will do what they deem best either in the interest of the stakeholders or not. However, FTX with all of its shenanigans is still confusing in the regulator’s eyes to firmly make a decision. Crypto is a budding industry and such types of intrusions will set it back years that may prove difficult to catch up to.
The actual problem with cryptocurrencies is their compatibility with the present Securities Laws. The same old stick to measure a metric is far more complex in this era. The point of contention is the perplexity in digital assets when it comes to identifying third parties and their efforts to generate profit. The shift to proof of stake for Ethereum raised questions about it being security. The SEC Chair, Gary Gensler, hours after the merge, bashed proof-of-stake cryptocurrencies citing the Securities Law as the major reason. The regulatory institutions are bent on clamping down on crypto in the US and are taking steps in this direction.
What does it mean to be called security?
Cryptocurrencies being called a society basically mean they have restricted access to capital. In the case of a traditional company, it has to go through different processes to be able to raise capital, and the amount is recorded and restricted. On the other hand, cryptocurrencies are funded by the people when they buy the token or coin instead of handing over the money to the founders, and raised capital is then used to develop the project until it is able to fly on its own. No one person is the controller of the decisions and their roadmap but holds a stake in the future through the coin or token.
When declared security, it is unequivocally cut off from the US market. It leads to delisting from all the exchanges operating under US jurisdiction. The other option will be to sell it as an unregistered security. This lessens its reach to the masses and restricts it to accredited investors which basically means getting money but with a lot of strings attached. If the team behind the project is hell-bent on making it registered then a myriad of documents must be submitted and many legal requirements make the process extremely cumbersome. A ton of paperwork, broker-dealer licenses, and capital market licenses make an exchange difficult to function in US territory.
But why the US?
The US runs the biggest capital house in the whole world. When you get access to the US market you get recognition in a diverse marketplace and capital accumulation is made seamless. The land of the free when you follow your own dream, well… not exactly but better than many other nations in the world. And its dominance as the world’s financial hub further strengthens its position. Even if many small nations consolidate and a crypto project gains recognition in any other continent, the US will still have its lucrative status as the end destination for it.
Logical Insights:
The regulators are after crypto companies because of their aim as an alternative to the current financial network. Everyone functioning inside the black box is afraid of anyone revealing too much. Crypto is an alternative and gives new opportunities to people in less developed countries.
Unless and until a regulatory framework is introduced at the national level, these institutions will do anything in their self-interest either harming the technology progress or not.
There is always a political mandate involved in decisions that assure the masses of not proclivity. We can clearly see that in the FED’s decisions to raise rates or the introduction of so-called inflation-reducing bills. All of them aim to supply one thing: more time to the present government.
Thanks for reading my piece.