The US does not intend to ban cryptocurrencies, but many cryptocurrencies fall under the definition of “securities” and, according to SEC President Gary Gensler, should be regulated as such.
Gary Gensler: Cryptocurrencies will not be banned
The SEC chairman answered a question from Ted Budd, a Republican congressman from North Carolina. The question was simple: is the US going to ban cryptocurrencies in favor of the CBDC as in China? Gary Gensler’s answer was clear: no, but Congress can do it.
However, he also reiterated that there was a need for regulation, whether for DeFi platforms or centralized projects that would have to be licensed. Finally, he added that most cryptocurrencies fall under the definition of securities.
Why cryptocurrencies are not securities
Congressman Tom Emmer argues that cryptocurrencies cannot be considered securities.
“Let’s say someone who issued the token agrees with President Gensler that he wants to register it as a security with the SEC. Can this token trade on the NYSE or NASDAQ after registration? No ”.
It goes into detail: in his opinion, it is not possible for a broker like Charles Schwab to manage digital assets and hold them with the consent of the SEC. And further:
“If Gensler considers a coin with a market capitalization of $ 1 billion and tens of thousands of investors to be a security, what will happen to those investors?”
If cryptocurrencies were considered securities, there would be no room for retail investors. This would cause BTC and other cryptocurrencies to drop. He said it would be best if the SEC stayed away from cryptocurrencies.
Cryptocurrencies: securities or commodities?
The definition of whether they are securities or commodities means the transfer of authority over them to the SEC or CFTC.
In fact, cryptocurrencies include both. In 2019, former SEC Chief Financial Officer William Hinman defined ETH as a commodity, ie. type of raw material, as well as gold, and therefore is regulated by the CFTC. Commodities have one characteristic: their value is determined by the law of supply and demand.
In contrast, “derivative” products, such as ICOs, futures or ETFs, are considered securities. In these cases, the buyer expects an economic return. The Howey test is used to determine whether an asset falls within the definition of securities. Three questions need to be answered:
Is it an investment of money with the expectation of future profits?
Is it an investment of money in a joint venture?
Do the profits come from the activities of an intermediary or a third party?
If you answer yes, the asset is a security. A cryptocurrency like BTC, traded on classical crypto exchanges, therefore does not look like a security at all due to its decentralized nature.