There has been much debate on the forceful actions taken in the last few years by US Securities and Exchange Commission (SEC) regarding cryptocurrencies/crypto-assets. Last week the SEC demonstrated its aggressive tactics to stifle the entire crypto market by charging a former Coinbase employee. The alleged charges implicate Ishan Wahi as an aid who coordinated the platform’s public listing announcements, including what crypto assets or tokens would be made available for trading. The charges against Ishan Wahi are for the apparent purchase and trading of at least 25 crypto assets for a profit with insider knowledge. The SEC insists that 9 of the 25 assets were securities and therefore fall under the same repercussions expected for insider trading of securities. The warning to the rest of the market is that no one is safe. Further scrutiny is anticipated as the SEC exercises its powers as a deterrent mechanism to sway investors and developers from creating similar products.
In order to allow inventors and entrepreneurs an accurate understanding of the legal definition of a crypto-asset/security, more work needs to be done. However, most crypto enthusiasts are of the sentiment that the opaque rules and laws around cryptocurrencies and the vague explanation of what a security is with regard to crypto-assets require better contextual characterisations. If clarity is provided, it is easier to see where the boundaries of the law lie to maintain integrity on both ends of the system.
The Howey Test should not be used as a fair assessment of cryptocurrencies. It was designed to address what qualifies as an “investment contract,” contracts on citrus groves under the Security Act of 1933 and the security Exchange Act of 1934. Today (2022), we live in a world that has changed considerably since then, so it seems irrational to apply the same tools to modern innovations and insist the logic is sound. Innovation should be given the space to breathe and carefully nurtured within adequate frameworks to allow methodical evaluations to occur before positive or negative judgement can be made.
The SEC is demonstrating its distaste for crypto-assets which brings bias into the equation when a lighter touch should be afforded. Furthermore, a more up-to-date method of assessing digital securities needs to be developed to update the assessment toolkit of the SEC.
The Stance of SEC on Cryptocurrencies
