Sprinkles from the Left

⏰🚀 Ready, Set, Go: These opinions take 1.77 minutes to read.

“Is lending your Bitcoins a security? Oh, sure, yes, absolutely… I have been saying this for months, though that’s only because the SEC has also been saying it for months. But I admit that the SEC hasn’t been saying it in a particularly clear way…

Look, I get it. From the perspective of Coinbase, and of its customers, and frankly of most normal people interested in crypto:

  1. People would like to lend their Bitcoins.
  2. It doesn’t feel like a security.
  3. It’s kind of annoying and archaic that a 1946 Supreme Court case says that it is?

But look at it from the SEC’s perspective:

  1. The SEC really doesn’t like crypto.
  2. The SEC is a regulatory agency that has a general tendency to want to do more regulating.
  3. Popular tokens like Bitcoin and Ether are not securities and so not subject to SEC regulation, which leaves the SEC feeling antsy.
  4. But crypto lending programs are pretty clearly securities subject to SEC regulation.
  5. So for the SEC to say “crypto lending programs are securities and need to be regulated” serves the dual purposes of (1) expanding SEC jurisdiction over crypto and (2) stopping those programs.
  6. Also it’s pretty clearly justified by a 1946 Supreme Court case.

None of that is at all satisfying, I suspect, but it is true…

Still I feel like both sides here are wrong and there is an obvious better analogy… Obviously this thing is a bank account

In general the thing that is happening now in the crypto world is that it is rapidly recreating the things that exist in the traditional finance world… of course it would be nice, for crypto companies, to re-create banking without bank regulation. But you can see why regulators wouldn’t like it.”

–Matt Levine, Bloomberg Opinion

“If financial regulators want to continue protecting investors as new technologies like cryptocurrencies and non-fungible tokens proliferate, they’ll need to give investors the tools to protect themselves. Indeed, regulators may have little other choice…

Rather than fight a losing war with decentralized markets and play whack-a-mole with every token that comes along, regulators should devote more resources to educating investors about how to manage their money responsibly. A few basic principles, explained in plain English, would go a long way. Investors should know how to properly diversify a portfolio and understand the fees they’re paying. They should also be able to distinguish between investments that can be expected to grow over time and speculative bets that are likely to wipe out their savings. Many people lack that basic knowledge, particularly the millions of young investors who are encountering markets for the first time during this pandemic…

That doesn’t mean regulators should stop regulating. Companies and intermediaries still need watching over… But it won’t be enough to protect investors. In this new world of decentralized finance, an educated investor is worth a thousand regulations.”

–Nir Kaissar, Bloomberg Opinion

Sprinkles from the Right

⏰🚀 Ready, Set, Go: These opinions take 1.82 minutes to read.

“Cryptocurrencies are a new force in financial markets, but their emergence is following an old pattern, for better and worse. Wednesday saw a step toward institutionalizing their trade with the $86 billion public offering of Coinbase, the largest U.S. cryptocurrency exchange. But regulators are creating danger for currency developers and retail investors…

The uncertainty is on display in the Securities and Exchange Commission case against Ripple Labs, a digital currency issuer… The agency says Ripple’s efforts to promote and profit from its product qualify the currency as a security, subject to the restrictions that govern sales of equities… Yet court findings in the discovery phase of the suit have highlighted the inconsistency of the SEC’s approach…

The SEC believes bitcoin and ether aren’t securities, in part because their developers don’t profit from their sale. But those exemptions were announced through statements from former SEC Chairman Jay Clayton in 2019 and 2020, with no formal rule-making. The findings by Judge Netburn in the Ripple case suggest that the agency hasn’t set clear rules for which currencies it regulates and which it doesn’t.

This confusion poses risks for investors… Coinbase delisted Ripple after the SEC filed suit in December, prompting a selloff that wiped out more than 60% of its value… U.S. participants in the $2 trillion cryptocurrency market are seeking clarity that the agency has declined to provide, preferring to announce its positions through individual enforcement actions…

A next step for the SEC should be to recognize the harm of its current ad hoc approach. Investors and developers deserve to know whether their actions in the market are legal before they read news of the latest SEC lawsuit.”

–WSJ Editorial Board

“When the U.S. Securities and Exchange Commission (SEC) filed its bombshell lawsuit against cryptocurrency innovator Ripple Labs in December 2020, it didn’t expect blowback. But during the pre-trial phase, Ripple’s legal team has put the SEC itself on trial after years of conflicting and confusing guidance on the rules for cryptocurrencies. No one expected the tsunami of legal, political and social media action from retail cryptocurrency investors, outraged by the betrayal from an agency claiming to protect their interests. The meltdown of the SEC’s credibility with this $2 trillion global investor community exposes a costly SEC miscalculation.

Indeed, official Washington has been back-footed by the size, scale and diversity of the crypto investor class and the industry they support. Lampooned by mainstream media and the U.S. government for years, the crypto community has built a media ecosystem that connects millions of investors, consumers, developers and entrepreneurs across the globe. It’s fitting that the pioneers of the blockchain economy would apply consensus protocols to their communication. This decentralized social media apparatus has proven powerful — just ask Congress after the backlash of the infrastructure bill over a badly written crypto tax provision…

With a razor-thin Democrat majority in Congress heading into the midterms, the Biden Administration can ill afford turning against the crypto community.”

–Roslyn Layton, Forbes Magazine