February 4, 2022

The SEC Introduces A ‘Trojan Horse’ Crypto Regulation As The Price Of Bitcoin, Ethereum, BNB, Solana, Cardano, XRP Rebounds

[Forbes, Getty Images]

Bitcoin and other cryptocurrencies are wrapping up the lackluster week on a high note. Today the bitcoin price rose 3.2%. Ethereum’s price jumped 8%. BNB leapt 3.8%, cardano 2.8%, XRP 2.7%, and solana 8.5%. 

Meanwhile, SEC watchdogs are plotting to ambush crypto markets with a “Trojan Horse” regulation.

Last week, the SEC introduced a seemingly unrelated 654-page plan aimed at regulating “Treasury markets platforms.” Pro-crypto Commissioner Hester Peirce, however, warns it’s a sweeping crypto regulation in disguise. While the proposal doesn’t mention crypto, its new rules would let regulators probe into crypto platforms and even decentralized finance (DeFi) protocols. 

“The proposal includes very expansive language, which, together with the chair’s apparent interest in regulating all things crypto, suggests that it could be used to regulate crypto platforms,” Peirce wrote in an email, as reported by Bloomberg” She added: “The proposal could reach more types of trading mechanisms, including potentially DeFi protocols.”

[Ed note: Investing in crypto is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Zooming out

Technically, the SEC is proposing to “expand Regulation ATS for alternative trading systems (ATS) that trade government securities, NMS stock, and other securities,” “extend Regulation SCI to ATSs that trade government securities” and “amend the SEC rule regarding the definition of an ‘exchange’.

According to SEC Chair Gary Gensler, the amendments aim to close a “regulatory gap” stemming from trading platforms that aren’t registered as exchanges or brokerages with the SEC. He also noted the proposed rules would extend existing regulations concerning platforms that trade Treasuries and other government securities.

This proposal would bind those platforms to register and be subject to regulation, which would “promote resiliency and greater access in the Treasury market.”

However, Peirce thinks this expansion of the exchange definition could also serve as a backdoor way to rein in crypto. “The expansive definition that’s being proposed for exchanges will cover a lot of potential platforms that haven’t thought necessarily that they would be covered and that’s in the traditional security space, as well as in the crypto space,” she said during an interview with Yahoo Finance.

That aligns with the SEC chair’s position for tighter DeFi oversight. In a Wall Street Journal interview last year, Gensler said that DeFi platforms aren’t exempt from market regulations: “Even though they are decentralized, with no central entity in charge, DeFi projects that reward participants with incentives or digital tokens could enter territory that is subject to SEC regulation.”

Looking ahead

There will be a 30-day window counting from January 26  for blockchain industry insiders, trading platforms, and other stakeholders to comment on the new SEC proposed plan.  

Peirce thinks this is an unusually short comment period for such a significant regulatory proposal. Coupled with Biden’s planned executive order, that may reflect regulators’ itch to tighten the grip on the exploding decentralized finance market.

After the comment period, the SEC will hold another vote to reach the final decision. If passed, the amendments could grant the SEC new powers to regulate crypto and DeFi platforms.

By Dan Runkevicius

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