Judge’s gavel on a cryptocurrency plate

SEC and cryptocurrencies: balancing regulation and innovation

11 July 2023

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In recent years, the cryptocurrency market has experienced explosive growth, bringing the attention of financial regulators, such as the Securities and Exchange Commission (SEC), to cryptocurrency platforms. While cryptocurrencies offer new opportunities and investment possibilities, security concerns, investor protection and regulation have led to a complex relationship between the SEC and cryptocurrency platforms. This concern, according to some, however, risks blocking innovation, as for example would be happening with the spot ETFs against which the SEC is fighting.

Between regulation and innovation: the struggle of the SEC with spot BTCs

In its cryptocurrency regulation campaign, the SEC has embarked on a long fight against crypto projects and exchanges. For some years we have been waiting to see the birth of ETFs, mutual funds that are negotiable on the stock exchange, entirely dedicated to cryptocurrencies. This project seems at the moment far from completion, precisely because of 'obstructionism by the American SEC.

According to the Wall Street Journal, the SEC found documents submitted by blackrock, ARK Invest, Fidelity, and other asset managers not "sufficiently clear and complete". Nasdaq and the Chicago Board Options Exchange (CBOE) were to indicate the BTC spot exchange with which they would enter into an agreement and provide more detailed information about it.

So it’s still nothing done in a struggle that has been going on in the US since 2017, while in Canada it sees spop t ETFs for bitcoins in place with the three major funds, Purpose Bitcoin, 3iQ CoinShares and CI Galaxy Bitcoin, investing directly in BTC spots.

The debate

There is a great deal of debate about this. The last to expose himself was Matt Huang, co-founder of Paradigm, a cryptocurrency investment company based in California. In particular, he argues that this fight can lead to a greater imposition of centralized systems to the detriment, of course, of decentralized ones. The speech is not yet over and will be discussed for a long time. Also because the SEC’s intentions are becoming increasingly serious.

The sectors in which the SEC intervenes concerning cryptocurrencies

Investor protection

The SEC’s main concern is investor protection. Due to the decentralized nature of cryptocurrencies, investors can be exposed to significant risks, such as fraud, market manipulation and data theft. The SEC is working to ensure that cryptocurrency platforms are subject to rules and regulations to protect investors and prevent illegal activities.

SEC: Regulation of cryptocurrencies vs innovation

The main issue regarding the regulation of cryptocurrencies is whether they should be considered as currencies, assets or securities. The SEC argues that some cryptocurrencies fall within the definition of securities and, as a result, platforms offering them must comply with securities laws. This implies that these platforms should register with the SEC and provide financial and legal information to their users.

Compliance and transparency

The SEC also stressed the need for cryptocurrency platforms to be compliant and transparent. Requests include user identification, reporting of suspicious transactions, and compliance with anti-money laundering regulations. These efforts aim to prevent illegal activities, such as terrorist financing and money laundering, within the cryptocurrency sector.

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