US pushes forward with new crypto rules

The US Senate’s failure to schedule a vote on the Clarity Act before the summer recess has forced the SEC, the CFTC, the White House, as well as executives from across the crypto industry to take matters into their own hands.

On Tuesday, the Securities and Exchange Commission proposed a framework entitled “Regulation Crypto Assets”, which would grant crypto projects a legally safe option to raise capital and have their tokens traded without having to jump through the traditional hoops associated with securities registration.

The following day, a consortium of crypto industry executives and policy makers met at the White House to discuss the path forward in light of the roadblocks currently holding back new digital asset regulation. During the ensuing press conference, President Donal Trump called on Congress to “take the next step by passing the Clarity Act”, adding that the bill is a “very powerful structure legislation which will keep us ahead of […] everyone else”.

President Trump was joined on Wednesday by CFTC Chairman Michael Selig, SEC Chairman Paul Atkins and White House crypto advisor Patrick Witt. On the industry side, the gathering included Coinbase CEO Brian Armstrong, Robinhood CEO Vlad Tenev, Nasdaq CEO Adena Friedman, Intercontinental Exchange CEO Jeff Sprecher, Payward co-CEO Arjun Sethi, Chainlink co-founder Sergey Nazarov, Ripple CEO Brad Garlinghouse, as well as a number of other influential founders and executives.

In what is turning out to be a major week for cryptocurrencies, a third event is scheduled for later today, with the CFTC holding the inaugural meeting of its Innovation Advisory Committee, the main focus of which will also be crypto asset regulation.

New SEC rulebook

As for the SEC’s proposal, the intention is clear for all to see; the potential ruling serves as a clear workaround to certain elements of the delayed Clarity Act. The framework starts by establishing two distinct exemptions, the first allowing companies to raise up to $5 million over a period of four years, the second upping the limit to $75 million every 12 months, but with stricter financial reporting requirements.

The two options are designed to make it easier for companies starting out in the crypto industry to raise capital by means of a token or coin launch, which has always been a little tricky in legal terms because such vehicles closely resemble investment contracts. “Money invested in a common enterprise with an expectation of profit from the effort of others” is essentially the SEC’s definition of a security, hence the legal minefield that has plagued the crypto sphere in recent years.

Addressing this directly, the proposal then introduces a measure that states that for any crypto project that has successfully fulfilled its functional and technical obligations as laid out during the initial investment phase, the associated crypto asset would no longer be considered an investment contract. The crucial aspect here is that institutions would more freely be able to own and trade crypto assets once they are fully operational, because at that point they would not fall under the definition of an investment contract; how the initial capital was raised becomes irrelevant.

While the SEC classified a number of high-profile cryptocurrencies as digital commodities back in March of this year, including Ethereum, Bitcoin, Solana and a dozen others, the ruling at the time did not comprehensively cover all blockchain activity within those ecosystems. The new proposal, if adopted, would establish a framework under which crypto assets tied to projects that have achieved their functional goals may cease to be subject to an investment contract. Such a ruling offers far greater legal clarity to institutional investors wishing to put cryptographic assets on their books, removing much of the legal grey area currently in place.

The proposal will now go through a 60-day period during which the public may comment and offer suggestions to tighten up the wording and clarity of the text. Depending on the extensiveness of the feedback received, the SEC may then revise the proposal before submitting it to a vote, or, in the case of major changes, reopen the matter to public comment.

As it stands, the Clarity Act is scheduled for a procedural vote on the 15th of September, which, if successful, would advance the bill to consideration before a final passage vote during the following days. The legal mechanism behind the Clarity Act is far cleaner and greatly more robust than anything lined out by the SEC this week, meaning a successful passage of the bill would immediately make the core of the Regulation Crypto Assets proposal redundant. Nevertheless, it is telling that the SEC is willing to introduce a stopgap to clear out the regulatory ambiguity. It is even more telling that industry leaders are meeting at the White House the following day to discuss matters further.

There is also the possibility that the Clarity Act fails entirely, in which case the proposal will suddenly become a vital lifeline for the cryptocurrency industry. Two competing legal paths are emerging concurrently, and while the first is a much more elegant and encompassing solution than the second, many in the industry may be placing their bets on the alternative option.

Bitcoin shot up to highs of $70,000 on Wednesday, dragging the entire cryptocurrency sphere along with it and pushing many projects to levels not seen in months.

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About the Author

Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.

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