It was a year filled with tantalizing tidbits and many loose ends.
2019 marked the 10th year since blockchain technology was released into the wild by its still unknown inventor, Satoshi Nakamoto, who mined the first bitcoin block in January 2009. In the intervening decade, blockchain technology has catalysed widespread innovation, some of which has garnered the attention (and consternation) of US regulators. One topic in particular has spawned spirited debate: How should token-based economic activity, especially within the sphere of capital raising and value exchange, be treated under existing US regulatory infrastructure?
While US regulators did not provide any specific answers in 2019, the year was notable for providing the crypto space with additional pieces of the burgeoning regulatory puzzle in the form of agency guidance, enforcement actions, no-action letters, and highly publicized governmental concerns regarding private global stablecoins.
Are You My Regulator?
2019 saw one major regulator defer to another where asset classification and jurisdiction are concerned. Some of the confusion over the definition and regulation of digital assets stems from the various regulatory agencies’ different perspectives and mandates. CFTC Chairman Heath Tarbert acknowledged in an interview that the SEC’s determination that a digital asset is a security (or not) is the “initial threshold determination,” and that if digital asset is deemed to be a security, it will not be treated as a commodity.
Guidance Galore …
2019 also featured significant issuances of agency guidance on digital assets, including:
But Still No Federal Statutory Framework
On April 9, federal legislators introduced two bills that sought to provide the digital asset space with regulatory certainty, but which have stalled and are yet to be enacted:
Custody Is Still Problematic
The SEC and FINRA clarified their position on the possible custody of digital assets that are deemed securities by broker-dealers through the following measures:
Action by No-Action
According to SEC Chairman Clayton, in 2019 the SEC took a measured, yet proactive regulatory approach with respect to digital assets that was intended to foster innovation and capital formation while protecting investors and investment markets. As a result, the SEC released several no-action letters, a promising sign that the agency is willing to engage with companies making good-faith efforts to bring innovative blockchain-based products and services to the marketplace. Notable instances of the SEC’s measured approach include:
Beware the Crypto Cops
The SEC’s attempts to provide regulatory clarity for the crypto space did not detract from its mission to also deter and punish actors that it deemed to be in violation of securities laws. As a result, 2019 saw the agency take a number enforcement actions, which raised renewed calls for the SEC to publish clear and up-front guidance rather than to regulate through post-hoc enforcement. Notable actions included:
Official Skepticism of Private Global Stablecoins Persists
While many central banks are investigating and even planning their own central bank digital currencies, 2019 will certainly be remembered as the year when the wings of private global stablecoin innovators were clipped by sovereign regulators. Examples of the regulators’ skepticism of private global stablecoins include:
20/20 in 2020?
It is clear that token regulation has been a concern — if not a priority — of regulators and lawmakers alike this past year. With 2019 (defined as it was by unsteady steps and piecemeal progress) coming to a close, we can only hope that 2020 affords a clearer vision for the regulation of digital assets.