In 2019, the SEC published a document, “Framework for Investment Contract Analysis of Digital Assets,” attempting to address specific aspects of crypto assets. It honed in on initial coin offerings (ICOs), contending that ICOs represent securities transactions. Four years later, the document seems outdated, even as SEC Chair Gary Gensler maintains that the rules are clear.
However, the crypto landscape has evolved dramatically, and the document’s relevance has significantly diminished. Once influential, ICOs have transformed into near non-existence. The disappearance of ICOs signals the need for a new framework for market participants, prompting exchanges like Coinbase to demand legal guidance from the SEC.
As crypto innovation continues to grow, countries around the world have welcomed digital assets and their potential. The European Union, Hong Kong, and France, for example, have embraced crypto market participants and enacted clearer regulatory guidelines.
Conversely, the SEC appears to rely on an outdated 2019 document that no longer serves the rapidly evolving crypto market. In turn, this leaves market players mired in regulatory obscurity. The lack of clear policy raises questions about how the SEC is handling the emergence of cryptocurrencies.
DLX Law’s paper, “The Ineluctable Modality of a Securities Law,” recently explored the intricacies of this topic, revealing that the debate over whether an ICO represents a securities transaction often overshadows a more crucial discussion – if the underlying asset can be considered a security, especially in secondary transactions.
The authors of the paper propose that the answer to this question doesn’t exist in current legislation, and it would require either action from Congress or an innovative regulatory framework borrowing from existing policy. Despite the murky regulatory environment surrounding crypto assets, the SEC has yet to provide much-needed guidance or acknowledge the shortcomings in its existing approaches.
For the moment, both legal experts and market participants are left wondering why the SEC refuses to issue updated guidance and why they believe the existing framework suffices. Thus, the crypto market’s evolution demands updated and comprehensive regulations capable of addressing cryptocurrencies’ unique characteristics.
Without Congress stepping in or more decisive leadership at the SEC, the 2019 document remains the primary source of guidance for market participants. As crypto innovation moves forward, it’s crucial for the SEC to recognize the shortcomings in their current policy approach and provide a suitable and up-to-date framework for the modern era.
Source: Blockworks
