Addressing Regulatory Uncertainty in the Crypto Market
Securities and Exchange Commission (SEC) Chairman Paul Atkins announced a new framework designed to address the prevailing regulatory uncertainty within the cryptocurrency market. During an appearance on Fox Business's 'Mornings with Maria' program with Maria Bartiromo, Atkins detailed the SEC's efforts to clarify the definition of a "security," a persistent issue impacting the digital asset industry.
Atkins characterized the industry's current state, stating, "Unfortunately, the industry has been operating in a fog for several years. They haven't really figured out what the SEC is looking for and how this new technology can fit in with our archaic rules that apply to paper filings and stocks."
A Four-Category Token Classification System
To bring clarity to the classification of crypto assets, Atkins outlined a proposed token classification system. This system divides digital assets into four main categories:
- •Digital Commodities
- •Digital Collectibles
- •Digital Tools
- •Tokenized Securities
According to Atkins, the first three categories within this classification system are not considered securities. Only the final category, Tokenized Securities, falls under the definition of a security.
This statement reinforces his prior assertion that the majority of crypto tokens currently traded do not meet the criteria of securities.
The Foundation of Regulatory Confusion: The "Investment Contract"
The SEC Chairman identified the definition of an "investment contract," a specific type of security, as the root cause of the ongoing regulatory confusion. He noted that while this definition has been the guiding principle for the industry since the emergence of cryptocurrencies approximately a decade ago, its origins can be traced back to a 1946 Supreme Court case known as Orange Grove.
Atkins emphasized that the SEC's work is predicated on the principle that a token itself does not inherently have to be a security, but rather, it can represent one.
He further added that a token might cease to be classified as a security as its underlying network becomes more decentralized.
Focus on Fundamental Issues and Inter-Agency Cooperation
Atkins indicated that the SEC's approach will primarily concentrate on fundamental issues. He also highlighted the importance of cooperating with other regulatory bodies, including the Commodity Futures Trading Commission (CFTC), to ensure comprehensive clarity within the cryptocurrency sector.