SEC Fails To Provide An Official Label For Digital Assets

May 4, 2023 6:27 pm Comments

Previously, the SEC was going to provide an official definition on what is considered a “digital asset” which was very much needed in order to provide clarity on crypto regulations.

However, the SEC suddenly decided to retrace on that and decided not to release the formal definition which once again led to the disappointment of the crypto community.

The definition was supposed to be included as part of a hedge fund rule, but it has not been disclosed why the commission decided to remove it from the rule last minute.

Some believe the reason is because it would’ve weakened its position in the SEC vs Ripple lawsuit or would interfere with its agenda of enforcement actions against crypto firms.

The fact that the SEC has still not officially defined what a digital asset is indicates is a tremendous risk to the industry.

CoinDesk reports:

The original proposed definition for a digital asset in this week’s hedge fund rule hadn’t been extensive or controversial, describing such a thing as “using distributed ledger or blockchain technology” and including “so-called ‘virtual currencies,’ ‘coins’ and ‘tokens.’”

The agency continues without digital assets holding a formal place in its lexicon, though it’s a constant topic in the speeches of Chair Gary Gensler and other SEC officials.

“The SEC is a regulator that requires transparency from its registrants, but it is continuing to withhold regulatory clarity by not defining digital assets,” said Anne-Marie Kelley, a partner at Mercury Strategies who was a longtime SEC official.

She suggested the commission may have deleted the definition because “any recognition of digital assets uniqueness as a novel product weakens their litigation stance that digital assets are securities and subject to the SEC securities laws.”

Many have asked for the definition to be extremely specific and classify whether digital assets are considered securities or not.

Of course, this request would not be fulfilled by the SEC which unfortunately leaves the regulations open to interpretation by the agency.

As a result, this could lead to the SEC picking winners and losers within the industry as investors will not know which crypto the SEC might target next.

SEC lawsuits against crypto have always dragged on for long amounts of time such as the case of Ripple.

Hopefully, the legal actions that Coinbase is taking against the SEC can force the agency to bring clarity to crypto regulations.

CryptoBriefing reports:

MetaLawMan further tweeted: “But somehow, the SEC has taken 8 years to analyze whether Ether is a security—and it’s still officially undecided.” It is true: The SEC still has been unable to define Ether as a security, with the Chair Gary Gensler refusing to discuss it even one year later.

According to the Howey test’s framework for digital assets, defining Ether as a security will allow holding ETH to be defined as an investment and subject to federal laws that will make it difficult for Ethereum users. It will require disclosure agreements and registration of those listing Ether, causing issues for exchanges that list ETH and for DApps on the Ethereum Network.

Six months after questioning ETH’s security status, the SEC labeled nine cryptocurrencies as securities, an action criticized by many in the industry as “regulation by enforcement.”

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