The reality is that securities law is slow to change. The SEC’s authority still rests on two acts passed during the heady days of the Great Depression: the Securities Act of 1933 and the Securities Exchange Act of 1934. As Rep. Jim Himes pointed out at yesterday’s hearing, the SEC prosecutes even an offense as familiar as insider trading without specific legislation behind it, instead relying on anti-fraud and anti-manipulation authorities.
While the Token Taxonomy Act would indeed be useful in establishing baseline definitions for how legislators treat different cryptocurrencies, the bill — like its predecessor — has seen limited action since introduction in April.
Legislation will have to come eventually, but it’s unlikely that Congress is going to be the first party to blink. There will be more hearings. Per an Aug. 23 announcement from Chairwoman Maxine Waters, among the Financial Services Committee’s priorities for the fall were:
“Conducting an ongoing review of Facebook’s proposed cryptocurrency and digital wallet [...] exploring data privacy; examining the use of artificial intelligence in financial services; and reviewing the evolution of payments and cash.”
However, hearings have been slow to turn into law, especially when the members of the Financial Services Committee still lack much of the technical knowledge necessary to speak with conviction as to next moves, and especially when later on Sept. 24, Speaker of the House Nancy Pelosi announced that the House would be initiating an impeachment inquiry into President Trump, which is absolutely going to take center stage in the House for the foreseeable future.
What to look for next
Similarly, it’s probably foolish to wait for grand initiatives from the commissioners of the SEC, but the commission is already taking decisive action in the courts and in their approvals — using existing law and limiting grandiose statements.
Blockstack’s $23 million token offering earlier this month was a landmark both thanks to its scale and the fact that the company had received SEC approval in advance — a first. The race to get the SEC stamp for the first Bitcoin (BTC) exchange-traded fund (ETF) will also be one to watch. The same day as the hearing, the commission started publishing that it was looking into Wilshire Phoenix’s request to change a rule to allow NYSE Arca to list their BTC ETF.
On the other hand, the SEC has concluded a huge number of cases against initial coin offerings from 2017 and early 2018 this past summer, many ending in settlements of well over $10 million. Even without a change to formal rules, these cases demonstrate a clear willingness to pursue bad actors and will continue to establish the industry’s guard rails of precedent, which will, for the time being, have to precede new law.
Financial Services Committee Chairwoman Maxine Waters was unavailable for comment, as was the SEC’s Senior Advisor for Digital Assets Valerie Szczepanik.
