The blockchain world, infamous for its fair share of scams and fraudsters, has been hard hit with the recent falls of Luna, Three Arrows Capital, and FTX. The hope for resurrection however, centers around a future market structure bill from Congress – but there is a hitch. The U.S. Securities and Exchange Commission (SEC), under the guise of protection, might be sabotaging the industry’s resurgence for its gain and for the Chairman’s political goals.
According to Matt Walsh, a founding partner of Castle Island Ventures, the SEC should be acting as a disclosure-based, technology-neutral regulator. This commission is mandated to protect investors, maintain fair and efficient markets, and facilitate capital growth. They should be setting a framework for information about technologies but should not be the ultimate decision-maker for technologies’ survival.
However, with the change in administration, the reported role of the SEC seems to have morphed into a more merit-based regulatory role. It seems they’ve decided to covertly influence several significant rules and may be playing judge on which technologies should exist within the United States.
A not-so-hidden effect of the uncertain regulatory environment is startups deciding to move offshore, while established companies are biding their time instead of expanding. Now, instead of fostering secure institutions offering services and stimulating capital through local companies, the SEC’s policies are inadvertently putting more U.S. investors at risk.
The SEC’s recent proposed updates, specifically the Staff Accounting Bulletin 121 (SAB 121) and changes affecting broker-dealers, are seen by some as covert maneuvers sidelining Congress and regulating cryptocurrencies out of existence. SAB 121 requires banks filing with the SEC to list customer funds as their own assets, a method alien to typical banking norms. This rule impacts the crypto industry particularly harshly.
Adding to these dilemmas, proposed changes to the “custody rule” might prevent institutions like Fidelity and Coinbase from holding assets for registered investment advisors. This, combined with the redefinition of “exchange,” threatens to regulate Decentralized Finance (DeFi) protocols like exchanges, a move perceived to be a silent ban on DeFi in the United States.
If the SEC successfully keeps to this path, it could lead to a scenario where even the most secure banks give crypto a wide berth, financial open-source software is restricted, and State trusts like Fidelity Digital Assets are disqualified from playing the role of custodians.
The blockade on the emergence of the digital asset industry in the United States doesn’t eliminate the industry. It merely shifts the location of its flourishing. The E.U., U.K., Singapore, and Australia have already enacted regulatory frameworks for digital assets.
Public policy matters such as these ideally should be ironed out by elected officials in Congress rather than by the SEC’s opaque methodologies. The quest for a clear path to integrating banks and broker-dealers into the digital asset market continues, as does the need for reliable regulations to capture rogue actors without hindering growth.
Source: Coindesk
