U.S. regulators often hog the attention of the cryptosphere to such an extent that it is easy to forget that they are ultimately only responsible for deciding their own enforcement strategy. It is the U.S. Congress that makes the law and the courts that interpret it, and it is the lack of action by the federal government that is resulting in regulators of the likes of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) entering a greater position of power than perhaps intended.
The push for legislation on the federal level has stalled time and again to date, but Congressman Warren Davidson, from Ohio’s 8th District, seems intent on changing that. He stated at the Blockland Cleveland conference on Monday that he will soon present legislation that could have a big impact on the initial coin offering (ICO) industry in the U.S.
The SEC announced last month that it had settled two charges against ICO issuers due to their unregistered offerings of tokens. The settled orders against companies Airfox and Paragon ordered them, among other things, to register their tokens as securities and potentially compensate investors who purchased tokens in the initial offerings.
The SEC stressed in its statement that "these two matters demonstrate that there is a path to compliance with the federal securities laws going forward, even where issuers have conducted an illegal unregistered offering of digital asset securities," which some saw as a positive sign, but the market took as a threat to the entire ICO industry.
Davidson plans to take that authority out of regulatory hands, saying that his bipartisan bill (a significant factor as it will be presented to a committee controlled by the Democrats while he is a Republican) would seek to create an "asset class" for tokens. That would mean they would no longer be classified as securities, but would nevertheless still be regulated by the federal government.
"What this does for entrepreneurs is it gives people an ability to raise capital a different way," he said.
U.S. Congressman Warren Davidson. Courtesy.
Davidson met with industry leaders, lobbyists, and nonprofits in a forum on Capitol Hill to discuss ICO regulation back in September, and it is unclear whether SEC staff is also collaborating with congressional staffers on the matter. The congressman has stated that the draft of the legislation will become public by the end of the year and it will be intriguing to see how it goes about creating a new asset class, especially with SEC Chairman Jay Clayton saying last week that the agency has no plans to change its rules. "Our rules have stood the test of time very well and we should not change them to adapt to technology. Technology oughta be able to fit within our rules," he noted.
Davidson obviously takes a very different approach, saying blockchain innovation has "outpaced current law and court decisions."
"Early attempts to regulate digital currencies have frustrated entrepreneurs' dreams with complex regulation and costly compliance," Davidson said in a press release in September. "New York’s BitLicense is a perfect example of this ineffective complexity. Disparate courts' decisions and enforcement actions were causing capital to flee the U.S. for more certainty in foreign markets – like Switzerland. In May, I went public with a pledge to introduce a bill creating legislative certainty for the U.S. ICO market. This bill aims to clarify the roles of regulators, protect consumers, address national security concerns, and facilitate a pro-growth environment for companies to raise capital."