The latest regulatory attack of the United States may be summed up in one word by the participants in the bitcoin industry: crackdown.
After years of a laissez-faire attitude that resulted in disasters and significant financial scandals, such as the overnight collapse of the empire of the king of cryptocurrency Sam Bankman-Fried, the U.S. Securities and Exchange Commission appears determined to impose order with an iron fist on the sector. His enterprise was made up of the trading platform Alameda Research and the FTC cryptocurrency exchange.
Sister coins Luna and UST crashed in May 2022 before FTX declared bankruptcy in November of last year, resulting in a credit crunch that forced crypto lenders Celsius Network and Voyager Digital out of business. These scams have destroyed billions of dollars, leaving millions of investors, especially retail investors, with a sour taste in their mouths.
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The most frequently asked question following the revelation of these scandals was where the regulators were to safeguard clients or investors.
The town has a sheriff.
The SEC now appears committed to proving that a sheriff is in charge.
The federal government is focusing more on currency and less on business operations. The regulator wants to classify all cryptocurrencies as securities, which would give it significant control over the market.
The agency defines a security as “a financial investment in a shared company with a reasonable prospect of profit derived from others’ labour.”
The regulator seeks to cite a Supreme Court decision from 1946 called the Howey Test, which defines what constitutes a “investment contract” and is consequently covered by U.S. securities laws. If money is invested with the expectation of a profit, an investment contract occurs.
Up until now, tokens or coins have not been thought of as securities. This indicates that they are exempt from severe regulatory oversight and are not bound by the same standards of financial transparency and disclosure as, for instance, stock in a corporation. Tokens are also subject to a less stringent listing process than securities.
Market players who are under the SEC’s supervision must abide by stringent transparency, risk-management, and other requirements.
The SEC’s chairman, Gary Gensler, has acknowledged that some tokens, like bitcoin, might not be regarded as securities.
Yet in an effort to reduce their volatility, he has concentrated on so-called stablecoins, which are pegged to other assets like the dollar.
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