“Incredible promise” was the expression used by Jay Clayton, the U.S. Securities and Exchange Commission Chairman, while describing distributed ledger technology (DLT), the consensus of shared databases, replicated synchronously among network nodes where no data storage or central administrator exists. Bitcoin’s blockchain and IOTA’s tangle, for example, both fall into the category of shared ledger technology. Interviewed by CNBC on June 6, he added that this technology could enhance efficiency in more than just the financial market, hinting the plethora of use cases of blockchain.
Cryptocurrencies and ICOs
Clayton spoke of the nature of cryptocurrency investments, where he defined digital assets as “replacement for sovereign currencies such as the dollar, the Yen, or the Euro, with Bitcoin.”
“That type of currency is not a security,” he clearly stated. He went on to describe a security investment in the crypto space as “a token, a digital asset, where I give you my money, and you go off and make a venture, […] and in return […], you say I am going to give you a return, or you can get a return in the secondary market by selling your token to somebody. That is a security, and we regulate that. We regulate the offering of that security and we regulate the trading of that security.”
The interview host, Bob Pisani, then asked Clayton on whether most ICOs will be ruled as security investments in the future, to which he answered, “Correct.”
He pointed out that SEC has already been ruling over the $19 trillion securities market, enforcing laws, issuing regulations and ensuring compliance for a long time. Clayton invited blockchain and cryptocurrency ventures to follow the private placement rules established by SEC and to make sure their offerings are launched in a compliant way.
“If you want to do an IPO with a token, come see us, file the financial statements, file disclosure, take the responsibility our laws require, and we will be happy to help you do your public offering.”
SEC’s Views on Existing Digital Assets
In the midst of the ICO frenzy of 2017, most digital assets were placed under an enhanced scrutiny from SEC. In fact, back in July 2017, Fortune magazine reported that SEC has explicitly expressed its opinion on ICOs, ruling them as unregulated securities. A more recent Bloomberg report echoed the incident and went on to include existing cryptocurrencies. Former Chairman of the Commodity Futures Trading Commission (CFTC) said that Ripple’s XRP and Ethereum’s Ether “could probably be classified as securities.”
Asked about this possibility, Clayton declined to comment on specific cryptocurrencies but went on to recall the basic definition he already gave. He once again defined security as simply a profit made out of relying on third party’s efforts. He added that SEC won’t alter the traditional definition of the term, which has been established and proved efficient for decades.
The last question addressed to Clayton was about Bitcoin ETF (exchange-traded funds), where Pisini hinted the fact that many issuers were waiting for SEC approval in order to start offering ETFs, as well as the criteria that should be met.
Clayton stated that SEC’s division of investment management was the one establishing the rules on whether to approve a product and that asset pricing reliability was one of the main criteria that should be met, hinting the extreme volatility in most digital asset prices and the lack of clear fundamentals behind price evolution in the crypto space.