Crypto Confusion Wears on U.S. Authorities

It’s the middle of the day and you have a big project due tomorrow. You know you should be working on it, but first you need a snack. And you’ve been meaning to respond to that one email. Looks like the car needs a wash, too.

We all know what procrastination looks like. Right now, it seems that cryptocurrency is the item atop the to-do list that the Securities and Exchange Commission keeps putting off.

Consider crypto exchange-traded funds, for example. The SEC decided last week to hold off on approving a bitcoin ETF application from financial products provider WisdomTree, opting instead to solicit feedback from the public regarding the product’s safety for investors. That fits with the agency’s larger pattern: It is currently reviewing more than a dozen applications and hasn’t approved any crypto ETFs within the United States.

Similarly, based on their reaction to a recent enforcement action, the SEC’s Republican commissioners appear to believe the agency has punted on guidance around how securities laws apply to digital tokens. Commissioners Hester M. Peirce and Elad L. Roisman voiced their concerns last week in response to an SEC order stating that Coinschedule, a UK-based operator of a website that promoted digital token offerings, failed to disclose it was compensated for promoting token offerings that qualified as securities. Specifically, Peirce and Roisman argued the SEC is “providing guidance piecemeal through enforcement actions,” a strategy they consider insufficient for properly informing participants in the crypto marketplace.

If the SEC’s apparent indecisiveness is bothering you, you might appreciate how authorities in China have approached regulating digital tokens. For the better part of a decade, the Chinese government has waged war on crypto. The campaign includes punishing businesses such as software companies that provide crypto-related services, ensuring digital currency doesn’t gain a toehold in the country. Those authoritarian tactics wouldn’t fly in the U.S., but at least the market in China knows the government’s position.

Although he may not share China’s extreme position on digital assets, SEC Chair Gary Gensler has made it clear he has misgivings about the lack of regulation around the crypto market in the U.S. He has noted that while the SEC can regulate securities or asset managers that invest in crypto, the agency doesn’t have authority over the digital assets themselves. In his mind, the situation calls for a legislative fix to clarify the agency’s role in regulating cryptocurrencies.

That fix could be in the works. Massachusetts Sen. Elizabeth Warren wrote to Gensler earlier this month to raise her concerns about the growth of the crypto market, which the former Democratic presidential candidate decried as “highly opaque and volatile.” She requested input from Gensler about what more the SEC could do to regulate digital tokens under the current rules. Additionally, Warren inquired about the “regulatory gaps” to be filled so the Commission could take a more active role in oversight.

If Warren’s dim view of cryptocurrencies holds true across Capitol Hill, expanding the SEC’s regulatory authority seems more like a matter of when it will happen than if it will. “While demand for cryptocurrencies and the use of cryptocurrency exchanges have skyrocketed, the lack of commonsense regulations has left ordinary investors at the mercy of manipulators and fraudsters,” she said.