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Regulate crypto? Sure. But how? 

Lily Jamali Jul 14, 2023
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Andrew Caballero-Reynolds/AFP via Getty Images

Regulate crypto? Sure. But how? 

Lily Jamali Jul 14, 2023
Heard on:
Andrew Caballero-Reynolds/AFP via Getty Images
HTML EMBED:
COPY

There was excitement in the world of cryptocurrency after a federal judge issued a ruling in a case brought by the Securities and Exchange Commission against the crypto company Ripple Labs.

The judge ruled Thursday that Ripple did not violate securities laws, as the SEC alleged it had, by selling its XRP token on public exchanges. But the judge did find that XRP tokens were offered and sold by Ripple as “investment contracts” — in violation of securities laws.

This is already a lot to follow, but the result is that both regulators and crypto bros are claiming victory in this headscratcher of a case.

Much of the legal wrangling in the crypto space comes down to whether particular digital assets can be classified as “securities.”

Regulators ask questions to see if they are, said Timothy Massad, former chair of the Commodity Futures Trading Commission. “Are the developers still involved? Does someone have administrative keys or powers that could affect the value of the tokens?” Massad said.

If so, then that asset falls in the securities bucket. That theoretically puts said digital asset and the company behind it within the SEC’s authority.

But, Massad said, regulators often have to sue to get enough information to make the call. “There’s nothing that mandates disclosures about particular tokens today,” he said.

Massad argues that crypto companies should have to make more disclosures upfront before a token ever makes it to a trading platform near you.

Despite disagreement over what new regulations should look like, Sheila Warren, CEO of the Crypto Council for Innovation, said they’re necessary.

“Sophisticated and mature actors in any industry understand that being within a regulatory perimeter provides comfort and security to users and consumers. And that matters,” Warren said.

But much of the current “regulatory perimeter” that crypto falls into was drafted almost a century ago, noted Stephen Palley, a partner with the law firm Brown Rudnick.

“The Securities Act and the Exchange Act, those are from the 1930s. Congress didn’t anticipate digital assets that could be traded electronically,” Palley said.

Fair to say, those rules aren’t aging too well in the digital era, Palley said.

“Imagine having interstates and cars, but having a 10-mile-an-hour speed limit. That wouldn’t make much sense,” he added.

All agree — the laws are due for some updates.

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