Brian Quintenz, the head of policy at Andreessen Horowitz and a former CFTC commissioner, is criticizing the U.S. Securities and Exchange Commission (SEC) for suing leading cryptocurrency exchanges for allegedly violating securities laws while industry participants and lawmakers are saying crypto companies need clearer rules to follow.
"Enforcement is not a substitute for GUIDANCE. Litigating whether specific tokens are securities through enforcement actions against third parties – like these exchanges – is inappropriate and does little to protect consumers or provide markets with clarity," Quintenz wrote in a June 6 Twitter post. "Instead, the SEC should work with market participants to modernize rules and clarify their application. That would be a responsible approach in line with their stated mission."
The SEC filed lawsuits against Binance and Coinbase last week, the largest crypto exchanges in the world and in the U.S., respectively. The lawsuits allege that Coinbase should have registered as an exchange with the SEC and accuse Binance of offering unregistered securities and permitting U.S. customers to use the global Binance platform, instead of restricting them to its U.S.-based platform, according to the SEC website.
During a June 7 appearance on CNBC's "Squawk Box," Treasury Secretary Janet Yellen said she sees a need for “additional regulation” in the crypto industry, citing “holes in the system” that are not currently sufficiently covered by the CFTC or SEC, Crypto Slate reported.
“We’d like to work with Congress to see additional regulation pass," Yellen said.
Financial analyst Matt Levine, a former attorney and investment banker, wrote in his "Money Stuff" newsletter that the "key legal question" at the heart of both lawsuits is whether the digital assets listed by Binance and Coinbase are securities or not.
"If they are securities, then probably Coinbase and Binance (and Bittrex and everyone else) are operating illegal securities exchanges; if they are not securities then everything’s fine," Levine wrote. "Just being a crypto exchange in the U.S. is, in the SEC’s eyes, illegal.”
During a House Financial Services Committee hearing the week after the SEC filed the two lawsuits, Coy Garrison, a partner at Steptoe and Johnson LLP and a former counsel to SEC Commissioner Hester Peirce, argued that litigation from regulatory agencies is useful in holding bad actors accountable, but it does not serve as a replacement for comprehensive regulations.
"Enforcement actions are tools to hold wrongdoers accountable, but they cannot replace sensible market regulation that can help deter, identify and mitigate wrongdoing," Garrison said in his testimony. He said that digital assets do not "fit nicely into existing regulatory regimes," which has made it challenging to answer the "foundational question" of whether they should be classified as securities or commodities. He emphasized that based on his experience, "most market participants want to comply and will do so when provided with clear rules."
Dr. Emin Gün Sirer, the founder and CEO of Ava Labs, also emphasized in his testimony during the hearing that "Responsible actors in the blockchain space want sensible laws and regulations that incentivize growth and good behavior, punish bad actors and elevate the users of blockchain networks." He added that industry participants are eager to collaborate with lawmakers to help craft those regulations.
"The community stands ready to provide guidance to policymakers to achieve those aims. However, without sensible frameworks and collaboration, there is a clear path to losing technological leadership to other countries," Sirer said.
Coinbase CEO Brian Armstrong responded to the lawsuit against his company with a tweet, saying Coinbase is "proud to represent the industry in court to finally get some clarity around crypto rules."
Binance also highlighted the crypto industry's need for regulatory clarity, writing in a blog post in response to the SEC's lawsuit, "Unfortunately, the SEC’s refusal to productively engage with us is just another example of the Commission’s misguided and conscious refusal to provide much-needed clarity and guidance to the digital asset industry."
The New Mexico Department of Higher Education is utilizing blockchain technology in a new initiative to provide students and schools with a secure, inexpensive way to share credentials such as diplomas and transcripts.