With 2 trillion in the cryptocurrency market hanging in the balance, SEC Chair Gary Gensler announced several initiatives to expand investor protections in the crypto market. These new markets are not protected as traditional markets, and for this reason, potential new regulations should come as a welcome change, with the potential to increase market stability, help prevent fraudulent activity, and provide clear guidelines for future innovations within the crypto economy.
The SEC Chair’s remarks came shortly after The White House announcement that President Joe Biden is signing an Executive Order on the first whole-of-government approach to balance the scales and bring direction to the quickly evolving crypto market. “The Order lays out a national policy for digital assets across six key priorities: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.” This falls in line with Gary Gensler’s stance regarding the SEC’s future role, “The SEC’s remit is overseeing the capital markets and our three-part mission: protecting investors, facilitating capital formation, and maintaining fair, orderly, and efficient markets.”
To determine if something is an asset or security (and then covered and protected by the SEC), it must meet the four criteria of the Howey test. The four criteria are as follows: 1) an investment of money, 2) in a common enterprise, 3) having the expectation of profit and 4) being derived from the efforts of others, with the last two being the more discerning questions. In regards to this, Gary Gensler remarks, “My predecessor Jay Clayton said it, and I will reiterate it: Without prejudging any one token, most crypto tokens are investment contracts under the Howey Test.”
Having The White House and the SEC both working to bring more security to crypto, optimism among crypto experts rises with anticipation for the regulations to follow. When these new regulations are going to be set is yet to be determined, however, change is coming and it is best to be prepared.
Coast to Coast Compliance can help your firm navigate these regulations as they develop, leaving your firm confident in its business practices and management of assets.