Securities Regulations Shackle U.S. Cryptocurrency Industry
Cryptocurrency is far from unregulated. In the United States, it is often overregulated. This is a big enough problem when the rules are too numerous or onerous. But to make matters worse, the rules can also be vague. And as a cherry on top, regulating agencies may be slow or even refuse to clear things up.
Who wants to deal with this kind of headache? Not cryptocurrency entrepreneurs, those mobile millionaires whose businesses are global by design. Many of them pack up their packets and move to more hospitable climes. It is for this reason that Americans have become accustomed to the screens informing them that “this service is not available in your country.” While this doesn’t stop dedicated Americans with bitcoins burning a hole in their wallets, it does put up walls for less savvy Yankees that may be more in need of financial opportunity.
But some projects do want to make it work in America. Whether chasing patriotism or profit, they train with their lawyers to jump through all the hoops. This often involves asking a lot of clarifying questions. As we will see, maybe it is better to ask for forgiveness than permission.
Last week, the popular cryptocurrency exchange Coinbase published a blog post accusing the Securities and Exchange Commission of dirty tricks. The company has been planning to issue a new product, Coinbase Lend, for some time. Like the name implies, this product would allow users to earn interest—starting with an almost mythical (for contemporary Americans) 4 percent annual percentage yield (APY)—on cryptocurrency assets that are lent out to borrowers. It would be like if you had a savings account that actually earned money.
To make sure everything was on the up and up, the company says it proactively reached out to regulators while it readied its waitlist and promoted the service. Coinbase has something of a reputation for being compliance-focused, perhaps even to a fault in the opinion of the famously government-allergic cryptocurrency world. They surely hoped their good faith dialogue would be returned in kind.
That didn’t happen. According to the blog post, the company was shocked when it was told not only that Coinbase Lend would be considered a security, like a stock, and subject to all the according regulations but also that the SEC was in the process of suing the company and that it wouldn’t divulge the reasoning behind this decision.
There were plenty of “well, ackshuallys” to go around. Obviously Coinbase Lend is a security, since it promises a return. Err, or maybe it’s obviously because the first asset that could be lent out would have been Coinbase’s own stablecoin, or dollar-backed cryptocurrency, USDC, which Coinbase obviously … promotes? And anyway, this is obviously an investment in a common enterprise. No, no, no. No 4 percent APY for you, America.
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