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Commissioner Peirce Calls for Clear Rules of the Road
What happened?
Last week, SEC Commissioner Hester Peirce delivered a speech at a Digital Assets conference hosted by Duke University, in which she advocated for her agency to abandon its regulation-by-enforcement approach to digital assets in favor of a more productive approach using its rule-making authority.
“If we continued with our regulation-by-enforcement approach at our current pace, we would approach 400 years before we got through the tokens that are allegedly securities. By contrast, an SEC rule would have universal – albeit not retroactive – coverage as soon as it took effect.”
Addressing the looming legal questions surrounding token offerings, the Commissioner explained that “an initial fundraising transaction … can create an investment contract, but the token itself is not necessarily the security, even if it is sold on the secondary market,” referring to the fact that the SEC often mistakenly refers to the tokens themselves as securities.
With respect to the jurisdictional battle between the SEC and CFTC, the Commissioner expressed that it is Congress’s job, not the Commission’s, to ultimately decide on these high-level issues. In the meantime, it’s the Commission’s job to use the tools at its disposal to provide market participants with clarity, not enforcement actions.
What does this mean?
We don’t expect a change in course from the SEC, which is unfortunate given its approach has been “the opposite of a rational regulatory framework,” in the words of Commissioner Peirce. The SEC’s “probabilistic” approach to law enforcement makes a mockery of the principle of the rule of law and has wrought havoc in the marketplace, all while failing to protect consumers and investors. Is ad hoc enforcement of unclear rules and without paths to compliance the best we can do?
EU Introduces Strict Rules for Banks Holding Crypto
What happened?
On Tuesday, the European Parliament’s Economic and Monetary Affairs Committee voted to impose stringent capital requirements on banks holding cryptocurrencies by mandating them to hold euro capital on par with their crypto holdings. The 1:1 rule will effectively prohibit banks from gaining leverage from their crypto, as they must always issue an equal amount of capital in euros.
Member of the EU Parliament, Markus Ferber, stated “such prohibitive capital requirements will help prevent instability in the crypto world from spilling over into the financial system.”
The law has not been enacted yet, as it needs approval from the European Parliament.
What does this mean?
This is probably a good idea for the time being.
Arizona State Senator Proposes Bitcoin as Legal Tender
What happened?
On Wednesday, Arizona State Senator Wendy Rogers (R-AZ) introduced a bill aimed at qualifying bitcoin as legal tender in the state of Arizona.
Under the bill, a state agency may partner with a cryptocurrency issuer to enable their ability to accept bitcoin as a payment method for taxes, fees, and other state-imposed costs.
What does this mean?
While bitcoin is still used primarily as a store-of-value and investment by its US holders, acceptance as legal tender from a state is a step in the right direction of being a viable medium of exchange in the future.
Currently, the United States will only accept US dollar-denominated assets as legal tender for state-imposed costs, which forces bitcoin holders that wish to pay with their coin(s) to convert their BTC for USD in a taxable event.