I'm flabbergasted by how much disinformation is infecting this threat. If you look at the list of legal actions the SEC has pursued at the bottom of the article, they are all flagrant violations of securities law and clearly unethical practices.
For example, in "SEC v. Jon E. Montroll and Bitfunder", the individual in question was accepting "investments" in his exchange that were clearly securities (probably fitting the definition of a public offering). He also failed to report a massive theft of Bitcoin and misappropriated customer funds.
This guidance does not claim that Bitcoin or Ethereum are securities.
This is the birth of a new industry. It's unregulated, messy, and the massive amounts of money involved have invited all manner of fraudsters and scam artists - just like the stock market did 100 years ago. There will be a regulatory shakeout and we can all hopefully get back to the business of building a useful ecosystem.
This comment is written as if it says something important, but really doesn't say anything at all.
It would be monumentally newsworthy if there was clear guidance that Bitcoin and Ethereum "weren't securities" (more generally: that businesses that simply deal in Bitcoin were generally outside the purview of securities regulation). But we do not in fact know that right now.
No expert believes that you can look at the list of current enforcement actions and reliably predict the SEC's next actions. They could keep taking out scammers for the next several years, getting practice by picking out the low-hanging fruit. Or, they could at literally any moment come down like a ton of bricks on the industry's most mainstream participants. We simply don't know.
What we do know is that "coin-mediated" finance is enabling thousands of people to launch investment-driven businesses who would previously not have been able to do that before, not because of a lack of technical ability but because the laws made it prohibitively expensive. Those laws have not been repealed. A lot of reasonable people are waiting for the other shoe to drop.
I'm personally very keen on "coin-mediated" finance. However, that doesn't mean I'm stupid enough to believe I can flout securities law without consequences. A public offering is still a public offering when you couch it behind a token, no matter how cleverly constructed your whitepaper.
If the SEC was going to come down like a ton of bricks they would have done so already. I could be wrong, but their actions seem to demonstrate that they're taking a very measured, careful approach to coming up with a regulatory framework.
My comment was a reaction to other comments, not the statement from the SEC - which actually doesn't say much either.
I think reasonable people can disagree about the likelihood of upcoming enforcement actions. The only place where I feel entitled to get shouty about things is when people suggest that it's clear what the SEC is going to do next. I think it's easy to make a case that it's anything but clear.
I definitely wouldn't feel comfortable proclaiming with any certainty that Bitcoin or Ethereum or even ICOs were definitely going to fall afoul of the SEC. My understand is that the SEC is generally a lot smaller than "we" think it is and it's sort of a random function. Cryptocurrency is super important to HN, but the SEC's definition of "systemically important" is different than ours.
> My understand is that the SEC is generally a lot smaller than "we" think it is and it's sort of a random function. Cryptocurrency is super important to HN, but the SEC's definition of "systemically important" is different than ours.
Their mandate is to protect unsophisticated investors. That's why they weren't particularly interested in Madoff, and why the rules are so much laxer if you target "accredited investors."
Given that mandate, I think it's highly unlikely that they're going to go after romping, runaway successes. They'll focus on blatant pig-in-a-pokes.
I think they're sort of caught between a rock and a hard place - a lot of "retail investors" have bought into cryptocurrency at this point. Aggressive action by the SEC to crack down on digital currency would adversely affect the price of said currency, almost certainly harming "retail investors" in the process.
I'm using quotes because that's code for unsophisticated investors, the very group the SEC is supposed to protect.
> It would be monumentally newsworthy if there was clear guidance that Bitcoin and Ethereum "weren't securities"
The SEC refers people to the Howey Test in all of their statements, which is fairly clear guidance that they don't consider Bitcoin to be a security. With something like Ethereum they're not going to say, since something can alternate between being a security and not being a security, so any sort of specific guidance wouldn't be especially meaningful.
>This comment is written as if it says something important, but really doesn't say anything at all.
It's ambiguous what 'it' refers to (comment vs. the article) in your sentence. If you meant the comment, then I disagree because it doesn't pretend to say something 'important', it just points out that the article doesn't introduce anything new for people doing things that aren't clearly a scam under existing laws.
If you meant the article doesn't say anything important, then I agree and I don't think the comment you replied to says anything different.
Hmmm, very good point - I think I might have misinterpreted that line. The danger of an unclear subject ;-)
Agreed. The main thrust of my comment was that this is a non-article, and yet it seemed to be inviting commenters to lay out their pet theories on the validity of cryptocurrency as though they were validated somehow by the article's contents.
The problem is that you need a decentralized SEC, that somehow obviates the existing SEC, and all other similar government-empowered agencies all around the world. Good luck with that. You've got a long road to hoe just to convince people that's a good idea; it certainly isn't obvious to me. Without that power inevitably just collapses back to the central authority for all kinds of reasons. (Many of which are the reason why the stable solution in the existing economy is indeed the existence of a distinct SEC.)
I think the concept of accredited investor needs to go away though. Why should only the super rich be able to invest in risky ventures? Why do I see so many on the left supporting these regulations that only favour the super rich? I'm not just talking about crypto-currencies but any venture really, since the internet at least, anyone with an internet connection should be free to invest as they want. I'm personally not into ICOs or gambling in general but if that's your thing you should be able to do so.
When I first read your comment I agreed, however as I think about it, this type of regulation prevents lower income people from transitioning to a different class. I'd say the funding spent on this type of regulation would be better spent on social safety nets.
People should be free to take financial risks. There's currently nothing stopping people from investing everything into a small business, or blowing it all at the casinos or on lottery tickets. There's no justification for singling out securities and limiting people's right to invest their money in them.
"I think the concept of accredited investor needs to go away though."
At least some modification of who can be an accredited investor. Keep the current 200k income or 1 million in non-residental assets. Add some kind designation where you can declare an asset set aside for more risky (accredited investor level) investments and, after a year of sitting to prevent rash decisions, you are allowed to invest those assets in the risky investments. That would at least prevent people from cashing out there IRAs into obvious bubble situations and pyramid schemes and loosing all of their retirement assets. A lot harder for a con man to keep you fooled for a whole year.
I think because finance is complicated and people can be ripped off or not understand their investment. It would be interesting to revise the accredited investor to allow small investments individually and in total (eg, no more than $1k/year or something).
Without this rule, grandma and grandpa would be constantly bilked by investing their $50k into bad investments.
How can something structured as a Pyramid-Ponzi scheme be considered a legitimate new industry? I've yet to see anyone address - while referencing the Pyramid-Ponzi structures of the most popular crypto-assets - and give reason as to why this is okay (when traditional Ponzi schemes are not legal, and for good reason).
Here you go. This chart breaks down the differences between Pyramid schemes, Ponzi schemes, and open public cryptocurrencies such as Bitcoin. By "open public" I mean that there is no central authority or organization. Bitcoin is a decentralized open source project run by community participation (anyone can run a node or miner, and millions of people do).
>"This exemption protects from disclosure records compiled for law enforcement purposes, the release of which could reasonably be expected to interfere with enforcement activities. Since Exemption 7(A) protects the records from disclosure, we have not determined if other exemptions apply. Therefore, we reserve the right to assert other exemptions when Exemption 7(A) no longer applies,"
That list at the bottom is not exhaustive! It's just a few enforcement actions that the SEC wants you to read. They also do worse things.
For instance, the SEC threatened to prosecute the DAO [1], which was certainly not a "clear unethical practice", or "flagrant violation" of securities law -- just a bunch of people voluntarily putting their money into a pool to vote on what to do with it. They could even withdraw their money at any time.
"The Commission has determined not to pursue an
enforcement action in this matter based on the conduct and activities known to the Commission
at this time"
I mean... it sounds to me like they did their due diligence. The PDF contains an in-depth look at how existing securities law intersects with what this group was doing. That's exactly what the SEC is supposed to do.
DAOs are new and unfamiliar. They looked at what was going on and decided not to pursue further action. That seems quite reasonable to me.
> The Commission has determined not to pursue an enforcement action in this matter based on the conduct and activities known to the Commission at this time
What they mean is:
> We chose not to beat a dead horse, because it's already dead.
I don't see why that matters. They clarified that DAO tokens are securities but decided not to pursue any action for a number of reasons, one of which being (and they've stated this elsewhere) that prior to their clarification there was ambiguity on this issue.
The tl;dr is that they are clearly securities under existing law. Now that the SEC has clarified that fact companies are free to issue Tokens if they comply with the law.
> When the SEC says...what they mean is: we chose not to beat a dead horse, because it's already dead
The SEC charged Bernie Madoff's auditors after the scheme had been revealed [1]. In respect of the DAO, the SEC appears to be taking a "wait and see" approach. (With ICOs, on the other hand, we've seen enough.)
Every day that goes by is a day when they could’ve taken action but didn’t. The stuff they publish on the topic all seems reasonably well thought out, and is always consistent with a “we just want you to follow the rules in place even if you’re using novel tech to do things” mentality.
Sure, they can pivot into rabid dog mode at any moment, but they’re allowing things to proceed while being aware that it’s gaining more mainstream appeal.
The sort of posture you’re advocating is the same sort of scaremongering as the “this is all a Ponzi scheme that will blow up any day now” types are spewing.
For example, in "SEC v. Jon E. Montroll and Bitfunder", the individual in question was accepting "investments" in his exchange that were clearly securities (probably fitting the definition of a public offering). He also failed to report a massive theft of Bitcoin and misappropriated customer funds.
This guidance does not claim that Bitcoin or Ethereum are securities.
This is the birth of a new industry. It's unregulated, messy, and the massive amounts of money involved have invited all manner of fraudsters and scam artists - just like the stock market did 100 years ago. There will be a regulatory shakeout and we can all hopefully get back to the business of building a useful ecosystem.