The lack of sensible regulation is now a major hindrance to the adoption of Bitcoin. The building of trading infrastructures for Bitcoin is gathering pace but something is missing. New exchanges and financial entities are emerging offering custody, auditing, clearing houses, insurance, and trading of derivatives. All components for the future securitized Bitcoin market are falling into place save for one glaring exception – regulation. Despite the consistent stream of technical and processes advances in every area, regulation lags behind. The SEC appears more intetested in enforcement than building a regulatory framework that facilitates trading.
Crypto made headlines today in all major media outlets with the announcement that the SEC is charging Floyd Mayweather Jr and others for illegally advertising securities. After informally deeming all ICOs as securities, anyone involved in marketing, establishing, or trading ICOs risks fines and other punishments. This policy is fundamentally flawed and threatens the advance and stability of the entire ecosystem. And the reason is that the SEC is unable to draft a comprehensive plan to regulate crypto currencies appropriately.
In complete contradiction to the SEC, California Judge Gonzalo Curiel denied a motion for preliminary injunction of Blockvest (BLV) ICO. The opinion of the court is that the ICO failed the Howey Test; which serves as a loose guideline to define ICOs as securities. The ruling stated that investors did not have expectations to make profit from the tokens. Therefore, the case will be referred for trial or refiling under a different complaint.
This case adds further doubt to the validity of the SEC claims over crypro currencies. The problem for the SEC is the uninhibited creative nature regarding the formation of ICOs. In the case of BLV, the defense argued that the ICO was only a testing platform, not intended for real use. This case highlights the need to further study the establishment of ICOs. And save enforcement for actual law violations. Maybe a joint approach to regulation between developers and regulators can produce better results.
This week the NYSE announced it will be opening a trading exchange for Bitcoin Futures 2.0. This distinction refers to their Futures contracts containing enhanced regulatory compliance. These additional regulations were drafted in a joint effort by the NYSE and the CFTC.
This is an interesting development that probes whether future regulation will be a compromise or an allowance from regulators. For years the CBOE has been working with the SEC to identify requirements for a Bitcoin ETF. A decision whether to approve or deny the CBOE BTC ETF proposal is expected on December 29. Besides self-regulation, a hybrid system might be the best chance at satisfying the interest of both sides.
Unless the SEC focuses more on understanding crypto instead of restricting it, the growth of the market will be delayed. Demand for crypro derivatives is growing everyday but major banks are unwilling provide them without a clear regulatory environment. In this the SEC is directly responsible for holding back the entire market.
And however necessary regulatory interdiction may be to curb manipulation, it must allow for leeway. It must provide crypto with a certain degree of flexibility and independence.