Will classifying crypto tokens as securities hamper blockchains? 🔫
SEC's recent pursuit of Coinbase and Binance has brought the securities debate to the fore. SEC throwing crypto startups under the bus? South Korean banks gear up for a $27B security token market.
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The SEC's recent pursuit of Coinbase and Binance seems to have put everyone on their toes.
What's a financial advisor to do when everything they do could get them in the SEC's crosshairs? They're stuck in a limbo, facing restrictions that don't exist in any other asset class.
The tug-of-war you didn't sign up for
"Buckle up, Dorothy, 'cause Kansas is going bye-bye." – The Matrix
"Caution" is the mantra being chanted by Ric Edelman, founder of the Digital Assets Council of Financial Professionals (DACFP). He's telling his financial pros that recommending crypto investments right now is akin to a carnival daredevil sticking his head in a lion's mouth.
A staggering 37% of advisers claim to have some crypto tucked away in their own piggy banks. (survey by Bitwise Asset Management) Yet, only a measly 15% have the nerve to suggest such investments to their clients. Ric summed it up perfectly. "Advisers are handcuffed, and they're frustrated."
"A $50,000 bitcoin will change all their views. It's classic behavioural finance — everybody was excited about bitcoin at $50,000, and they became disenchanted at $20,000."
Edelman dishes out his outlook on how this wait-and-see phase is likely to change. He predicts a triumphant return of Bitcoin, a regulatory clarity post the SEC's crusade, and the calming of today's turbulent economic and geopolitical waters.
It's the circle of life
"When the going gets tough, the tough get going." - Billy Ocean
In the aftermath of the SEC's regulatory rumble, Haseeb Qureshi from Dragonfly and Avichal Garg from Electric Capital expressed their views. Qureshi, clearly miffed, compares the SEC's actions to a sheriff calling an entire town to jail. It seems the SEC's mass-security labelling has left the crypto town fatigued.
Garg, on the other hand, suggests that the SEC's inability to categorise digital assets with contemporary context is chipping away at its credibility. He ponders whether orange grove laws from the 1930s can effectively govern today's AI-driven, global market and digital assets.
The ugly duckling of securities?
"There are no problems, only opportunities." - Old budget analyst saying
Former SEC Chairman Jay Clayton tossed a curveball stating that the "vast majority" of crypto tokens could be classified as securities. Clayton added a sweet note, suggesting that something once labeled a security might not always remain a security. He uses an intriguing analogy of Broadway tickets, which may be securities if bought in bulk for reselling at a higher price, but just a ticket if bought individually for the show.
A monkey wrench in decentralisation?
"Life, uh, finds a way." - Jurassic Park.
Analysts at Bernstein present an interesting twist. They suggest that the application of archaic securities laws to the new-age crypto tokens could stifle the journey towards blockchain decentralisation.
"Without realising blockchain networks' very aim is to transform the decades-old financial and securities market systems, with more transparency, instant settlement times, disintermediation of middlemen, automation and reduced costs, global liquidity and interoperability," the report said.
While the U.S. grapples with regulatory uncertainty, countries like the U.K., Europe, Hong Kong, Singapore, and the Middle East seem to be dancing to a different beat, opening their arms to attract talent and capital into the crypto sphere.
SEC plays favourites?
The SEC seem to have a preference when it comes to the types of coins they go after. It's like they have a "Proof-of-Stake" vs. "Proof-of-Work" dilemma on their hands.
The SEC has set its sights on Proof-of-Stake tokens, leaving Bitcoin and other Proof-of-Work blockchains to carry on with their merry mining ways. Why? Well, according to the wise words of Steven Lubka from Swan Bitcoin, it's because Proof-of-Work coins don't have a central issuer. They're like the rebels of the crypto world, operating in an open mechanism without a boss.
The SEC has named a bunch of digital assets as securities, including Solana, Cardano, Polygon, Filecoin, and Sandbox, among others. What do they have in common? They're all Proof-of-Stake coins! These tokens rely on validators locking up their tokens to validate blocks.
The SEC has conveniently skipped over Proof-of-Work tokens in their lawsuits. No love for Bitcoin, Litecoin, Monero, Ethereum Classic, or even Dogecoin.
TTD Blockquote 🔊
The dunking Mark Cuban
“SEC and Gary Gensler are throwing crypto startups 'under the bus”
Mark Cuban, the billionaire investor took a swing at the SEC and its chairman, Gary Gensler and called for a more straightforward approach to regulation that wouldn't stifle the innovative spirit of these young companies.
Cuban slammed the convoluted rules that startups, particularly those in the web3 space, have to navigate. He suggested that the SEC and Congress should join forces to create a registration system that's as simple as a child's connect-the-dots puzzle, allowing startups and industry giants to thrive while ensuring investor protection.
Cuban's opponent in this lively debate, John Reed Stark, a former SEC chief, argued that regulatory clarity was irrelevant. However, he did acknowledge the difficulties faced by entrepreneurs and agreed that some regulations could be overly burdensome.
TTD Numbers 🔢
$27 Billion
South Korea's biggest commercial banks are diving headfirst into the security token market with a whopping $27 Billion in insights.
Seoul-based NongHyup, the brains behind this ambitious plan, formed a consortium back in April to create an ecosystem focused on security tokens. And now, the gang is getting bigger!
Hana Bank, Shinhan Bank, and Woori Bank have joined the NongHyup’s consortium, along with fintech companies like Funble, Trackchain, and Artipio.
With security token offerings legalized earlier this year, South Korea is ready to unleash its tokenized corporate bonds into the world. The consortium members are working together to find ways for banks to enter the STO market while playing by the rules. They're even cooking up platforms to issue token securities, creating a dazzling ecosystem where companies can issue tradable corporate bonds in token form.
TTD Coinbase 🔛
DEXs can't be regulated as exchanges - Coinbase
Coinbase has sent a letter to the US Securities and Exchange Commission (SEC) arguing that decentralised exchanges (DEXs) cannot be regulated in the same way as centralised exchanges. The letter comes in response to a proposal to regulate DEXs like their centralized counterparts.
Coinbase's Chief Legal Officer, Paul Grewel, stated that it would be impossible for a DEX to register in the same way as a national securities exchange. He also said that the SEC's authority to regulate an industry does not include the authority to ban it without clear Congressional authorisation.
TTD Binance ☸️
Rumour mill is spinning like a tornado in the crypto world! Binance CEO, Changpeng "CZ" Zhao, is here to set the record straight and put those wild accusations to rest. He denies, with a resounding "no way," that Binance has been secretly selling Bitcoin to prop up the value of its beloved BNB token.
Accusations flew from all corners, with market commentators and analysts pointing fingers at Binance, calling the foul play and market manipulation. But CZ ain't having any of it! He declared that Binance hasn't sold a single BTC or BNB. Plus, he slyly mentioned they've got a "bag" of FTX Tokens up their sleeve.
As the story unfolded, crypto enthusiasts debated the authenticity of BNB's market and alleged "wash trading" activities. Some claimed BNB was like a mirage, while others defended its honour. The battle of words raged on.
TTD Surfer 🏄
BlockFi has sued Connecticut Banking Commissioner Jorge Perez for refusing to accept its offer to surrender its money transmitter license.
BlackRock, with Coinbase as its partner, has submitted an application for a spot Bitcoin ETF with SEC.
New York Attorney General Letitia James announced a $1.7 million settlement with Hong Kong-based CoinEx over securities violations.
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Imagine a world where the government does not harm. Shame on the SEC.