The crypto market has been battered the entire 2018. Bitcoin dropped by around 85% since it reached its all-time high. And one of the reasons is the lack of regulatory clarity within the industry. Many crypto observers during the start of the year were excited about the possibility of regulatory clarity in 2018. However, there’s a lot of work to be covered by regulators.
So far, we know that Bitcoin along with Ethereum has been declared not as securities by the US Securities and Exchange Commission. As for other cryptocurrencies in a limbo, Ripple is even facing a class action suit saying that the company sold them a security.
A few weeks ago, the agency has renewed its intention to clean the crypto industry by hunting down on companies that have raised funds via ICO. The agency has also targeted celebrities such as Floyd Mayweather and DJ Khaled. But still, regulatory clarity is still quite far.
What Makes Regulatory Clarity so Important?
What makes regulatory clarity so important is the fact that it could potentially attract institutional investors. According to JP Morgan, institutional investors are said to be hesitant to enter the market due to the protracted bear market. Regulatory clarity could bring peace of mind to institutional investors that they can maneuver in the industry without fear of being shut down by regulators.
Excluding Digital Currencies From Being Defined as Security?
There are two congressmen who introduced a bill that would aim to exclude cryptocurrencies from the definition of a security. For years, the legal definition of a security has remained unchanged. Typically, it is important to undergo Howey Test in order to determine if it’s a security or not. For the two congressmen who proposed the law, this definition is outdated especially now that we have cryptocurrencies.
It is called the “Token Taxonomy Act”. It was an effort by Representatives Warren Davidson and Darren Soto. It defines a “digital token” and clarifies the that security laws shouldn’t apply to cryptos. According to Davidson, “In the early days of the internet, Congress passed legislation that provided certainty and resisted the temptation to over-regulate the market. Our intent is to achieve a similar win for America’s economy and for American leadership in this innovative space”.
However, there are a lot of problems that this bill is going to encounter. For instance, consumer protection remains among the top concerns especially when you have hacking incidences. And also, there are those who made speculative bets last year on cryptos who lost money after the crypto bubble burst. Bitcoin has lost 85% since its all-time high while losing 71% this year. On the other hand, you have XRP that is down by 85% this year.
72-Year Old Law
Now, the question is if the 72-year old securities law still applicable today? For the SEC Chairman Jay Clayton, he has clarified that he has no plans of updating the standards just to accommodate the crypto industry. If the bill ever gets approved, could it mean that ICOs could actually have a second wind? According to Clayton earlier this year, he mentioned that every ICO he saw was considered as a security.