SEC’s Proposal To Change Definition Of ‘Exchange’ Might Violate The First Amendment• April 18, 2022 12:02 pm • Comments
Recently, the SEC made a controversial proposal to change the definition of the word “exchange” which would likely expand the committee’s domain of authority when it comes regulating the crypto industry.
The SEC has already been making unpopular regulatory moves such as suing Ripple by making the accusation that XRP is a security instead of a currency.
If the proposal to change the definition of “exchange” gets approved, investors would likely be concerned on how this could affect crypto businesses and possibly other digital assets besides XRP.
As a result, Coin Center has filed a comment letter in response to the SEC saying that this proposal might violate the First Amendment by requiring a license to speak.
Therefore, it can be considered unconstitutional and must certainly be opposed by the community at large.
Yesterday we filed comments on SEC's Amendments Regarding the Definition of “Exchange”. The proposed definition is so broad that this letter probably makes any service hosting it a communication protocol system as it contains an offer for a security! https://t.co/POQaOBv0Lc pic.twitter.com/b7YYqcnMtm
— Gene Hoffman 🌱 (@hoffmang) April 17, 2022
Think tanks and crypto lobby groups’ motivations to rebuff SEC’s proposal comes amidst the regulators of the country gearing up to tighten oversight.
Last month, the agency published Amendments Regarding the Definition of “Exchange.” Many experts believe it targets bringing the crypto and, most importantly, decentralized finance (DeFi) sector into its regulatory perimeter, thereby dramatically redefining the risk profile of operating a project in the US.
While arguing that the implications on developers, publishers, and re-publishers would be adverse, Coin Center’s comment letter stated:
“A new SEC proposal has a serious change hidden within its complex language.
Bottom line: The proposal violates the First Amendment by requiring a license to speak—even of open source developers. It’s unconstitutional and they should change it. Coin Center is pushing back.”
The proposal from the SEC is also accused of being too broad in its definition because the document never once even mentions anything related to crypto or DeFi despite being over 200 pages long.
Because it is so open to interpretation, it should likely be rejected as the Supreme Court has usually done the same thing for previous instances.
With Coin Center submitting its request to the SEC, it remains unknown on whether the proposal will be retracted for further review or will be submitted for approval.
Investors are speculating that this change will most likely prevent major exchanges from listing digital assets in the way the SEC see fits if the proposal gets passed.
Critics within the crypto community have already accused the SEC of picking winners and choosers within the industry and this would certainly not help.
Coin Center called the controversial SEC's proposal, that sought to redefine the definition of "exchange", as unconstitional.https://t.co/85HHE1rYi3
— CryptoPotato Official (@Crypto_Potato) April 15, 2022
In addition to the harsher registration requirements, Coin Center argues that the proposed rule violates the First Amendment by infringing on freedom of speech.
The advocacy group cites a 1985 court case, Lowe v. SEC, where the SEC attempted to ban people from publishing newsletters with stock tips.
The court ruled the ban unconstitutional.
“We urge the Commission to follow the counsel of former Commissioner Karmel as well as current Commissioner Peirce, and to narrow the scope of the definition and avoid chilling the speech rights of Americans,” the letter said.
It seems like 2022 is certainly the year of regulation and a few pivotal moments, such as the results of the Ripple vs SEC lawsuit and the LRBY vs SEC lawsuit, could potentially define how crypto will be regulated in the future.
A proposed SEC amendment that would change the definition of "exchange" has piqued a crypto advocacy group's interest
— Casey Wagner (@caseywagnerr) April 15, 2022
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