Hot-Seat for SEC Chairman Clayton
COINDESK has announced that SEC Chairman Jay Clayton and Federal Reserve Director Glenn Hutchins will have a one-on-one fireside conversation at the CONSENSUS:INVEST conference to be held November 27, 2018, in New York City.
CONSENSUS Broad Agenda
The agenda appears to be a whirlwind of hot blockchain and cryptocurrency topics (but really, is there any other kind?)
A Welcome address by Coindesk Director of Research, Nolan Bauerle, will be followed by a Keynote address from Michael Casey, Chairman of the Coindesk Advisory Board, Blockchain Sage, and well known author of several blockchain books. The feast continues with servings for every crypto palate, including hedge fund issues, tax, accounting and crypto economics, token custody, large trade concerns, how to teach a cranky, hirsute legacy database platform to play nice with the cute, new blockchain kid, and getting a peak over the Great Wall to view the vast Chinese blockchain ecosystem.
Fireside Chat with Federal Reserve Director Hutchins and SEC Chairman Clayton
All to be followed by a fireside chat with Chairman Jay Clayton and Federal Reserve Director Glenn Hutchins. A ‘fireside’ chat is the perfect setting for tossing the crypto hot-potato back and forth. It will certainly be a metaphorical ‘hot-seat’ for Chairman Clayton as his office has fielded numerous crypto rule change requests in 2016 – 2018, including the Winklevoss Bitcoin ETF, Bitcoin Investment Trust, GraniteShares Bitcoin ETF, EtherIndex Ether Trust, SolidX Trust Bitcoin Shares, VanEck SolidX Bitcoin Trust Shares, ProShares Bitcoin ETF, First Trust Bitcoin Strategy ETF and Direxion Daily Bitcoin Shares to name a few. To date, all the requested crypto rule proposals have either been abandoned, withdrawn, or disallowed at least once by the SEC. Even with the well reasoned July 26, 2018, dissent of Commissioner Hester Peirce in the Winklevoss Bitcoin Trust – Bats BZX Exchange case. But this siesta is only temporary until the conservative, but reasonable, SEC requirements are met. Besides, everybody else has to meet them, why does crypto deserve valet treatment?
Castle of Securities
Careful and cautious consideration by the SEC, one-step-at-a-time, is to be expected from the field command (and should be welcomed) when an invading Genesis asset class (i.e., formed from nothing), acting like a self-absorbed adolescent gang, is trying to bridge the moat and kick down the gate to swarm the Castle of Securities. The role of the SEC is to patrol the moat and guard the portcullis, lest the 80 year old fortification be over run and sacked by barbarians. Panic deja vu, anyone? The inhabitants (some might say, the ‘inmates’) had to play by the rules to be admitted to the inner sanctum, why can’t crypto? Too many metaphors? Well, check out the growing list of SEC civil and US Attorney enforcement actions against the ever-so-clever (until they are caught) crypto-barbarian schemers. Its growing faster that a banker’s waistline! In the main, the SEC heavy armor will not let pass the magpie cries of the crypto class invaders – until they can run the gauntlet.
The heavy ammunition of the SEC comprises the 1933 and 1934 Securities Acts (amendments and legal precedents, i.e., the Howey test) passed by Congress in response to the Wall Street collapse of 1929 causing the subsequent long-term, world-wide Great Depression. The SEC enforces their statutory mandate,
” … to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system and, in general, to protect investors and the public interest.”
Sirens of Cryptopia
However, the SEC has been listening to the crypto sirens of Cryptopia, albeit with the restraint of Odysseus. In response to the needs of investors, the SEC has set up a new Division on their portal, the Strategic Hub for Innovation and Financial Technology (FinHub) so the regulators can interact with entrepreneurs and developers in the fintech world, and groups focusing on distributed ledger technology (DLT), automated investment advice, digital marketplace financing and artificial intelligence. By the way, it is really well done and a great resource. Plus, several of the Bitcoin ETF proposals recited above, although currently disapproved, have advanced in the gauntlet pursuant to the SEC Rules of Practice and are still under consideration by the Commission.
Lack of Liquidity
The familiar refrain of ‘lack of liquidity’ drifts again through the halls of Congress. Followed by, “Crypto to the Rescue!” Hey, wait a minute! That lack of liquidity was the same argument made to permit the industry to solicit securities-based funding from the general public and got the Crowdfund Act passed in 2012. So, there already is an SEC regulated source of funds from the general public-at-large for financing projects. But alas, it too falls to the crypto-complaint refrain, “Crowdfund is too starched and regulated!” Crypto baby throws it out of the pram. Can’t win.
Crypto or Bust!!™
Then the Crypto Sirens scouted the terrain in Washington. Before your crypto blood pressure gets too high, relax, give your gold bullion another hug, and remember that the SEC just enforces the laws – Congress (or is that K Street) makes them. Crypto will think of something .…. and they quickly did. With the usual end-around cavalry game plan, crypto industry representatives (mostly from fintech) met with Congressional leaders on September 25, 2018, and forcefully presented their case to exempt the new millennial crypto class from the current over-the-hill, cloistered, old-fashioned SEC requirements. The industry concluded with the ominous prediction that the US would be left behind in the race for blockchain technology. On exit, the Sirens wailed, “Crypto or Bust!!”
Really?
Blockchain Patents Aplenty
There is no shortage of blockchain (which by itself, is just a novel form of digital database) applications being filed with the United States Patent Office and WIPO. Use cases are being investigated and implemented in most US (and around the world) industries. One of the largest sectors successfully implementing the DLT locally is fintech. For example, see the recent patent 10,108,812 granted to Nasdaq for using the blockchain to disseminate time sensitive information. So, understand that it is not US progress with novel blockchain database uses that is supposedly stymied by the SEC, but rather unfettered access to using the crypto segment for trading and to finance projects. Are there no other sources of capital?
The meeting with Congressional leaders was just the first salvo by the Cryptopians. Ever creative, a lobbying firm has been engaged by a crypto coalition helmed by Ripple. No doubt a more organized monied assault will follow. Secure the castellations!
Sun Rise Profits
Lobbying groups or not, most all agree that the crypto class will survive the gauntlet, graduate to regulated status, and the sun will rise over amber waves of crypto profits. The timeframe and form have to be determined.
Hopefully, Jay Clayton and Glenn Hutchins will provide some insight into the liquidity timeline of their Crypto Crystal Ball.
In closing, it is certain that the participants will have many questions for both speakers in the Q and A.
Here is a sample of the first and last questions > WHEN?
It should be a lively exchange – and media blitz.
Enjoy the meeting.
Crypto or Bust!!™
Commentary by Attorney Timothy F. Mills, Editor / Action Cyber Times™ © 2018 All Rights Reserved.
Action Cyber Times™ provides resources for cybersecurity, data privacy, compliance, breach reporting and risk management, intellectual property theft, and the utilization of emerging technologies such as artificial intelligence, machine learning, blockchain DLT, advances in cryptographic applications, and more.
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