The impending battle over cryptocurrency regulation

The creators of “Unicorn Hunters”, an online reality show where budding entrepreneurs present their business ideas to a celebrity panel, are launching a new cryptocurrency.

This may sound deceptive, but the upcoming “Unicoin” can bring a level of accountability missing from most crypto tokens. That’s because Transparency Business, which owns most of the show, says it plans to register Unicoin with the Securities and Exchange Commission.

Unicoin will be one of the thousands of digital assets supported by distributed laser technology known as blockchain, but only one of the few that voluntarily comply with securities laws. This is partly a bet that SEC will expand its oversight of the $ 2 trillion crypto industry.

“We hope they will begin a regulatory presence at some point,” Unicoin co-founder Mo Vela, an attorney and former senior adviser to Joe Biden, said in an interview when he was vice president. “I think you’re going to see regulatory guidelines and parameters coming in next year.”

The SEC has led Washington’s new war on crypto regulation, accusing dozens of crypto players of using new technology to breach old-fashioned securities laws against investors.

Gary Gensler, chairman of the U.S. Securities and Exchange Commission, testifies before a Senate Banking, Housing and Urban Affairs Committee oversight hearing at the SEC on September 14, 2021 in Washington, DC.

Proponents of Crypto see it as one of the many potential utopian applications of blockchain technology, while its critics see fraud, speculation, and criminal activity. Crypto transactions take place through peer-to-peer computer networks rather than central intermediaries, such as banks, and have been used by criminals for illegal transactions such as ransomware attacks; There is the International Monetary Fund To warn Crypto can undermine monetary policy and financial stability.

In an executive order last month, President Joe Biden called on the SEC and other regulatory bodies, such as the Commodity Futures Trading Commission, the Federal Reserve, the Federal Trade Commission and the Consumer Financial Protection Bureau, to come up with a comprehensive one. Government approach to secure industry.

In Congress, most lawmakers seem to be neglected about crypto and intimidated by the endless jargon associated with technology. Among the few lawmakers who are paying attention are fans; The House has proposed a small bipartisan group of members Exemption of crypto from SEC supervisionBy reason, the federal government should not pursue “control through enforcement.” Industry appeal Congress to step up.

“We really must acknowledge that our banking and securities laws – some of them from the 1930s – are not equipped to provide a framework for controlling something that no one could have imagined 20 years ago,” said Sen. Pat Tommy (R-Pa.). , The top Republican on the Senate Banking Committee, told Halfpost.

The lines of partisan warfare are not fixed, but Democrats are a little more skeptical. Sen. Chairman of the Banking Committee. Sherrod Brown (D-Ohio), for example, described digital resources as primarily beneficial to criminals, so that “money launderers, hackers and crooks invent new ways to hide and transfer money in the dark.” He said at a hearing last month.

Brown told the Halfpost that Republicans want to cripple the industry without cracking down on fraud by calling for new legislation.

“They say they’re for control, but they’re not going to do anything that anyone in the industry would oppose,” Brown said.

For now, Brown is happy to let the executive agencies try to enforce existing laws. The SEC has filed more than 70 enforcement lawsuits against digital asset market participants over the past decade, including an ongoing lawsuit against company Ripple Labs. Violation of securities law The commission failed to register its XRP digital assets, depriving investors of information about XRP and Ripple’s business.

Commissioner Gary Gensler spoke harshly about crypto, comparing the industry to “Wild West”. He said the exchange where people buy and sell crypto is illegal if they are not registered. “It’s a question of whether they are registered or whether they are working outside the law and I will leave it at that,” he said Said last month.

The Republican SEC has been appointed Complaints The Commission’s enforcement action is a piecemeal procedure that makes the crypto industry uncertain when its cryptocurrency is counted as securities or other types of assets that are not covered under the Securities Act. For example, the Commodity Futures Trading Commission states that the most well-known cryptocurrency, Bitcoin, counts as a commodity, not a security. There is no company or central entity behind Bitcoin, making it one of the most decentralized digital assets in existence.

Todd Phillips, an expert on financial control and corporate governance at the Progressive Center for American Progress, says it is clear that current laws, which already cover many crypto activities, are being ignored.

“Many issuers of crypto tokens are failing to register their offers with the SEC,” Phillips said. “Federal law requires you to register if you want to sell tokens to the public and do so properly.”

Phillips says the reason the crypto industry is largely uncontrolled is that the SEC does not have the resources to enforce the law on the scale needed to bring the required amount of lawsuits.

Lawmakers have already been bent on new financial technologies. If Congress releases the crypto industry, Phillips Argued, It would make the same mistake in 2000, when lawmakers created the Financial Derivatives Agreement out of product control. Then the members of Congress Derivatives have been talked about in the same way that many people are now talking about crypto, Accusing the old laws of stifling financial innovation and threatening America’s technological leadership. Uncontrolled derivatives subsequently played a key role in the 2008 financial crisis, exacerbating the consequences of risky mortgage lending.

Sen.  Cynthia Lumis (R-Wyo.), Sen.  Joins Pat Tommy (R-Pa.), August 9, 2021, at the U.S. Capitol in Washington, DC, talking about a cryptocurrency amendment to the bipartisan infrastructure bill.
Sen. Cynthia Lumis (R-Wyo.), Sen. Joins Pat Tommy (R-Pa.), August 9, 2021, at the U.S. Capitol in Washington, DC, talking about a cryptocurrency amendment to the bipartisan infrastructure bill.

Kevin Deutsch through Getty Images

A broader, bilateral crypto bill could be put together this year, Sense. The result of a collaboration between Cynthia Lumis (R-YO) and Kirsten Gillibrand (DNY). Lumis, himself a major crypto investor, said the law would not protect the industry from SEC oversight – developers would have to register their initial currency offer with the commission.

“It preserves the traditional authority: the CFTC on commodities, the SEC on securities,” Lumis told HalfPost. “It provides definitions. It discusses stablecoin, banking, privacy and consumer protection.”

Lumis insisted he was working with Democrats on the law: “Digital resources are a non-partisan issue,” he said.

It is unknown at this time what he will do after leaving the post. Adele Nazarian, CEO of the American Blockchain Political Action Committee, made a dubious note about the idea of ​​the need to offer initial currency for registration with the SEC.

“It would be my absence to suggest that ICOs could ever be exempted from regulation by the SEC,” Nazarian said. “Therefore, there must be a completely new subset of the rules, with a more resilient framework for ICOs with differentiated language – SEC guidelines – which will fall under the same heading of overarching.” [anti-money laundering and know-your-customer] Make rules to follow these guidelines so that innovation can continue to evolve. “

Industry insiders argue that there should be no attempt to “cryptocurrency” crypto within the existing regulatory framework of Congress. Steve Bumbera, chief developer of a crypto project called Money Worlds Token, says the SEC is on the “battlefield” and that Congress should bring in a new body dedicated to controlling crypto. In short, he said lawmakers could come up with at least one clear measure to determine which regulators oversee different types of crypto products.

“It doesn’t really fall into one asset class or another. Some may be security at first and may turn into a utility, ”Bumbera said. If the SEC wants everyone to register for security, then 95% of the projects will be destroyed.

In the case of Unicorn, its makers say the token will pay dividends based on the performance of investments in emerging growth companies, some of which have appeared on the Unicorn Hunters show, featuring Vela and Apple co-founder Steve Wozniak and other business enlightened people and celebrities. Unicorn “Evaluate investment pitches from self-proclaimed entrepreneurs.”

In other words, it is clear that Unicoin will meet a security definition – buying currency means investing in a common enterprise with reasonable expectations of profit from others.

Many other crypto tokens are also security, but there is a strong incentive to avoid registering with the SEC without strict enforcement, as this is a major task.

“It’s expensive and it takes time,” said Richard Devlin, senior vice president and general counsel for Transparent Business, in an interview. “You need a lot of lawyers and this is a months long process. And then you have a public company that has its own ongoing reporting and compliance requirements, so it’s not cheap. “

Contributed by Daniel Marans Reporting.

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