Regulating Cryptocurrency
If The Government Does It, Look Out
Gary Gensler is the head of the Securities and Exchange Commission. He is not your friend. Gary was one of the worst heads of the CFTC ever in the short history of the CFTC.
I will advise you to search for posts about Gensler at The Streetwise Professor for his history. Gensler believes in the power of government to pick and choose for you. He also uses government power to crush potential competitors. If he can find a way to add a regulation, a report, and more paperwork, he will find it.
Cryptocurrency is walking around with a Gary Gensler target on its back.
Unfortunately, many in the crypto community welcome regulation. They think it will give the innovation legitimacy. It won’t. What will happen is government regulators will crush innovators, and the big companies that already exist will win.
The problem is that once an idea pops into the vernacular of the regulators, it never leaves no matter how bad the idea is. These people are not objective arbiters, they are fanatics.
On a panel discussion I was a part of, Northwestern Law Professor John McGinnis posed this question. It is yet to be answered and I believe it is very important.
“Will the State objectively regulate cryptocurrencies when cryptocurrency has the ability to topple one of the State’s greatest powers, money creation?”
The regulatory state moves slowly, but when it moves, it moves aggressively. You have to be vigilant and thankfully, some people are. A friend of mine recently alerted me to the path the SEC wants to take. Here are the details.
BACKGROUND / OVERVIEW TO THE ISSUE:
As we have all been likely reading, the emergence of the following Proposed Rule: Amendments to Exchange Act Rule 3b-16 Regarding the Definition of "Exchange"; Regulation ATS for ATSs That Trade U.S. Government Securities, NMS Stocks, and Other Securities; Regulation SCI for ATSs That Trade U.S. Treasury Securities and Agency Securities presents significant challenges for our membership and the growing digital asset industry in the United States.
WHY SHOULD YOU AND YOUR FIRM CARE? In this stealth rulemaking proposal, the SEC claims regulatory turf over every "communication protocol system," which it defines to include "a system that offers protocols and the use of non-firm trading interest to bring together buyers and sellers of securities." These systems are like securities exchanges, the SEC reasons, so they ought to be regulated as if they were securities exchanges. It's a "stealth" proposal because the words "crypto" and "digital" do not appear in the SEC's 654-page release, but the SEC is plainly aiming at systems (both centralized and decentralized) whose protocols aggregate indications of interest for buying and selling crypto assets, which its Chair and its Division of Enforcement (not necessarily federal judges or juries) are eager to classify as "securities" exchanges.
WHAT ARE THE KEY ARGUMENTS PRESENTED IN THIS RESPONSE
The Proposed Rules are a Surprise to the Digital Assets Industry and to Digital Assets Investors and are Contrary to the Message of the President's Executive Order on Digital Asset Regulation.
The Proposed Rules suffer from serious procedural defects as applied to the digital assets industry. Any attempt to apply the Proposed Rules to the industry without curing the defects would violate administrative due process.
The proposed redefinition of "exchange" to cover "communication protocol systems" that "make digital asset securities "available for trading" is overbroad and unworkable. If adopted, it will produce numerous negative second-order effects.
The Commission is either ignoring or attempting to abandon silently the settled meaning of the word "broker." Even if the Commission has the authority to redefine the word "exchange," its offering of the ATS as a less-intrusive option is not plausible for Communication Protocol Systems that do not "effect" trades.
The proposal then goes into provision of various alternative approaches which would be preferred by the industry to resolve the challenges identified through this Proposed Rule.
I would urge you to contact your Senator and Congressperson to stop this in its tracks.
A tangent. A US digital dollar administered by the Federal Reserve and US Treasury would be an awful day for people who believe in individual liberty and freedom.
Hey, we could just self-regulate. After all, that FINRA model has worked so well. As for a CBDC, that's the ultimate land grab. Land, assets, hope...you name it. Nom, nom, nom.