Gensler’s Crypto Mess: It’s Time For Congress To Teach The SEC What “Clarity” Means

By Jared Whitley. September 16, 2021. (Seeking Alpha).

The U.S. Securities and Exchange Commission (SEC) is playing a ridiculous game with the blockchain and cryptocurrency industry and the millions of investors it claims it’s trying to protect. The agency insists there is “clarity” on the rules it applies to digital assets, but will only communicate them through lawsuits. It tells the best, most innovative U.S. blockchain companies to “come in, talk to us,” and share the details of their product development line under the false pretense of guidance on being compliant, only to slap them with subpoenas instead. Not even the highest-priced securities lawyers can tell these companies what compliance looks like with any certainty. It’s driving exasperated American innovators overseas, and putting our economic future in danger.

If previous SEC Chairman Jay Clayton was the “most conflicted chairman in history”, then Biden’s pick – Gary Gensler – is the most clueless. Ever since he was confirmed he’s been saying that the rules on what makes a digital asset a security are “clear” and that he’s dedicated to “protecting investors”. But ask any retail digital asset investor and you’ll know that nothing is clear and none of them feels protected by Gensler. Quite the contrary, they see Gensler as the danger they need protection from.

It doesn’t even help to register your blockchain enterprise with the SEC to list it on the stock market. Coinbase, the leading crypto exchange platform, went public earlier this year and subjected itself to the full SEC cavity search. It competes with many non-listed blockchain companies offering lending products who haven’t faced any enforcement action from the SEC. Coinbase’s CEO Brian Armstrong shared his proposed lending product with Gensler’s people and they warned him if he started offering it, they’d drag him into court unless he registered the offerings as securities. He asked for guidance on why, and they refused to answer. A Wells notice followed, which is how the SEC warns you a lawsuit is coming. This behavior by the SEC was so shocking that some of Coinbase’s fiercest competitors rose to its defense.

Read the Full Article Here.

The SEC has told us it wants to sue us over Lend. We don’t know why.

By Paul Grewal, Chief Legal Officer of Coinbase. September 7, 2021.

Last Wednesday, after months of effort by Coinbase to engage productively, the SEC gave us what’s called a Wells notice about our planned Coinbase Lend program. A Wells notice is the official way a regulator tells a company that it intends to sue the company in court. As surprised as we were at the SEC’s threat to sue without ever telling us why, we want to be transparent with you about the course of events leading up to it.

Background

Coinbase has been proactively engaging with the SEC about Lend for nearly six months. We’ve been eager to hear their perspective as we explore innovative ways for our customers to gain more financial empowerment on Coinbase. Specifically for Lend, we’re seeking to allow eligible customers to earn interest on select assets on Coinbase, starting with 4% APY on USD Coin (USDC). We could have simply launched the product but we chose not to. This is far from the norm in our industry. Other crypto companies have had lending products on the market for years, and new lending products continue to launch as recently as last month. But Coinbase believes in the value of open and substantive dialogue with our regulators. So we took Lend to the SEC first.

What we’ve provided to the SEC

Coinbase’s Lend program doesn’t qualify as a security — or to use more specific legal terms, it’s not an investment contract or a note. Customers won’t be “investing” in the program, but rather lending the USDC they hold on Coinbase’s platform in connection with their existing relationship. And although Lend customers will earn interest from their participation in the program, we have an obligation to pay this interest regardless of Coinbase’s broader business activities. What’s more, participating customers’ principal is secure and we’re obligated to repay their USDC on request.

Read the Full Coinbase Blog Post Here.

The Crypto Uprising The SEC Didn’t See Coming

by Roslyn Layton. August 31, 2021. (Forbes).

When the U.S. Securities and Exchange Commission (SEC) filed its bombshell lawsuit against cryptocurrency innovator Ripple Labs in December 2020, it didn’t expect blowback. But during the pre-trial phase, Ripple’s legal team has put the SEC itself on trial after years of conflicting and confusing guidance on the rules for cryptocurrencies. No one expected the tsunami of legal, political and social media action from retail cryptocurrency investors, outraged by the betrayal from an agency claiming to protect their interests. The meltdown of the SEC’s credibility with this $2 trillion global investor community exposes a costly SEC miscalculation.

Indeed, official Washington has been back-footed by the size, scale and diversity of the crypto investor class and the industry they support. Lampooned by mainstream media and the U.S. government for years, the crypto community has built a media ecosystem that connects millions of investors, consumers, developers and entrepreneurs across the globe. It’s fitting that the pioneers of the blockchain economy would apply consensus protocols to their communication. This decentralized social media apparatus has proven powerful — just ask Congress after the backlash of the infrastructure bill over a badly written crypto tax provision. When the Ripple lawsuit was filed, that ecosystem galvanized an independent battlefront unexpected by the SEC.

Read the Full Article Here.

When We Face the Government, the Crypto Community Must Unify and Rise

By John E. Deaton, Founder and Host, CryptoLaw.

The apparent defeat over the crypto tax reporting measure in the infrastructure bill was a vivid warning.  The U.S. government doesn’t know what it’s doing on crypto, but it’s taking action anyway.  A $2 trillion economic sector is too ripe a target for a government that has spent the last decade ignoring its extraordinary birth and expansion around the globe.  But their ignorance to the potential of these technologies has become dangerous, and no digital asset is safe anymore.

From Bitcoin Maxis to the XRP Army, there finally was a realization that we’re all in danger without a clear regulatory framework, one which puts guard rails around the regulators just as much as it does around the scammers and the criminals. I’ve said it over and over since last year – the SEC v. Ripple case is the most impactful SEC enforcement action in a generation because the agency is coming after all of us, not just XRP. They made a mockery of standards for due process and fair notice and erased $15 billion in value for the investors they said they were protecting in a case that had no allegations of fraud. Many in the XRP Army express resentment towards Ethereum because of the notorious William Hinman speech on Ether in 2018. Hinman classified the 2018 speech as personal opinion and went on to claim that the SEC has never declared ETH not to be a security in a recently filed sworn affidavit.

As the case against Ripple drags on it’s becoming increasingly clear that the SEC is more than ready to come after ETH without any warning for its 2014 ICO. Regulators can give speeches in front of a room of 1,000 market participants giving their blessing to a digital asset and then slap a lawsuit on any company and any investor the very next day and laugh at you for thinking the speech meant anything as they issue subpoenas for your bank records. SEC Chairman Gary Gensler offers no coherent message on the assessment of existing clarity in crypto. Concurrently,  U.S. senators who claim to support democratization of global finance also claim to support a ban on decentralized finance in all its forms and want to tighten the centralized control of money.

Everyone in the U.S. crypto space needs to see the big picture, and it’s this: we have to get out of our crypto bubble and start ensuring that our voices are heard by elected Members of Congress in every state and every district. They must be given notice that starting immediately, and tomorrow, and next week, that the crypto community is not some anarchic fringe or group of “shadowy super-coders”. We are people from all walks of life who believe in this technology and how it will transform the economy for the better.  We use digital assets of all kinds for a variety of important uses. We get paid in these coins, and we buy groceries and pay bills with them. We are building companies that use them to allow banks, companies and everyday consumers move money around the world in an instant at almost no cost, with better security and transparency than the banks. We are also investors, of course, and we want laws against scammers and fraudsters. The crypto community is not involved in crime and terrorism – we are law enforcement’s best allies in catching those people and bringing them to justice. We are that first group of true believers that every huge innovation needs to get off the drawing board and into the mainstream economy, sharpening all the benefits and working through all the bugs, building markets for how to use it and build on it.

That is the reality of our community that has been missing for the last decade in Washington, and it’s the only thing that is going to turn our situation around there. A million screaming tweets of incoherent anger are worth less than one sincere conversation with your elected representative about what crypto means to you, how you use it and what you need from them. It isn’t partisan, it isn’t ideological and it isn’t even complicated when it comes down to you and your story. 

A community as big as ours, built around decentralized technology, should know it can’t rely on a handful of lobbyists or a group of influencers.  We need to get to work today, and every day forward. I don’t care which coin you favor or which crypto “tribe” you’re in – everyone needs to do this.

The first action you should consider is to find your House member and your two Senators on Twitter, and tweet at them that you are a constituent and crypto is important to you. Then tomorrow, if you really want to scare them, call the U.S. Capitol switchboard at (202) 224-3121 and ask to be connected to their office. When they answer, very calmly tell them your name, that you’re a constituent, and you need to talk to someone about crypto and why it’s important to you. Those Members of Congress may seem like they don’t do much, but every one of them employs people whose only job is to listen to you if you’re from their district or state. They are usually very nice, thoughtful people who have those jobs. They have to listen to you. If you’re not a U.S. citizen, then take your story directly to U.S. officials on social media or call the U.S. embassy in your country. The actions they are taking are impacting all of us, everywhere. They need to hear it and understand it.

In the end, if they don’t understand who we are and what this community is about, they will continue to blunder their way through screwing up one of the greatest economic innovations in history and opening the door for the truly shadowy figures of global finance to crush it and all the good it will bring to billions of people.

Elizabeth Warren Wants The SEC To Kill Crypto. Gary Gensler Had Better Not Agree.

By Jared Whitley. July 23, 2021. (Seeking Alpha)

Sen. Elizabeth Warren (D-Mass.) has made herself clear that she sees cryptocurrencies as “bogus private digital money” and a kind of social pestilence that needs to be annihilated through regulation. In short, she has no idea what blockchain technology is, what it does, how it works or why people use it – but it has to be stopped and she’s going to stop it.

Like many geriatric progressives approaching their sell-by date in Congress, Warren is so out of step that young progressives in her own party shake their heads at how wrong she is on this one.

But Warren is not some harmless grandmother yelling from her porch – she’s the chair of a Senate Banking subcommittee, and she can do real damage. In a recent letter to U.S. Securities and Exchange Commission Chairman Gary Gensler, Warren not so subtly demanded that the agency start grabbing more regulatory power in order to smash U.S.-based cryptocurrency exchanges. Legal and industry experts believe that Warren colluded with anti-crypto zealots inside the SEC to write that letter as a Beltway power play, hoping to lock in the SEC as “the Terminator” before other agencies, like the Commodity Futures Trading Commission (CFTC), dare to legitimize the utility and benefits of this new technology. Taking a step back, it was an act of desperation by a faction of Washington dinosaurs that are poised to be on the losing side of history, and Gensler’s agency is in turmoil.

Read the Full Article Here.

Cryptocurrency’s Future in the U.S. Is Threatened By SEC Action Against Ripple

By J. Carl Cecere. April 19, 2021. (Bloomberg Law).

Securities and Exchange Commission Chairman Gary Gensler has an important opportunity to undo actions taken in the waning hours of the Trump administration that threaten cryptocurrency innovation.

Back in December, outgoing SEC Chair Jay Clayton brought an unprecedented enforcement action against the enterprise software company Ripple, creator of the digital currency XRP—which was the world’s third most popular cryptocurrency, but not anymore.

The SEC’s lawsuit seeks billions in penalties from Ripple Labs Inc. and its executives. But the agency does not allege that any of its investors were defrauded.

Read the Full Article Here.

Bidenworld On Crypto: Don’t Fall Into The Regulation Trap

By Jared Whitley – March 5, 2021. (Seeking Alpha)

Bitcoin’s market value recently topped $1 trillion. Tesla recently bought $1.5 billion in the digital asset to set up liquidity for accepting it as a form of payment for its cars. Microstrategy, which is publicly listed like Tesla, issued convertible bonds to help amass $4 billion in bitcoin on its balance sheets. China has rolled out a digital yuan – the eCNY– now being used in retail transactions in major Chinese cities.

Digital money is here. America had better accept reality and embrace this new innovation. If we do, the U.S. has all it takes to dominate the new frontier of cryptocurrencies and blockchain technology and lead the fintech revolution. But if the Biden Administration’s America-last policy chooses overregulation instead of innovation, the U.S. will hand the 21st Century economy to the Chinese Communist Party.

Read the Full Opinion Column Here

Gensler Hearing Wrap Up: Who is really being protected by SEC “investor protections”?

By John E. Deaton, Founder and Host, CryptoLaw.

Today’s confirmation hearing before the U.S. Senate Banking Committee for Gary Gensler to be the new chairman of the Securities and Exchange Commission was the first chance to pose direct questions about the future of crypto regulations in the United States.  Three senators posed questions of interest to digital asset holders, and this was a step forward, but Gensler’s answers didn’t provide the kind of clarity we have been demanding.

In short, Gensler heralded the innovations of crypto technology, but always completed the point with stressing “investor protection” – and never explained exactly what that protection meant in regulatory terms.  There are currently no clear rules about how to regulate digital assets – nothing about use cases or token taxonomy or anything at all – so the jurisdiction of the SEC to “protect” us can be stretch so far as to destroy our holdings without even consulting us, like in the Ripple case.

  • When asked by Senator Mike Rounds (R-SD) about the “outdated crypto regulatory regime” and what Congress and the SEC could do to create a “forward thinking regulatory environment for innovators in this space”, Gensler responded with a talking point he’d repeat during the hearing: blockchain and cryptocurrencies “have been a catalyst for change.”  He said the cryptocurrencies “have brought new thinking to payments and financial inclusion” but also “issues of investor protection that we still need to attend to.”  Gensler added he would “work with other commissioners to both promote the new innovation but also, at the core, ensure for investor protection.”   He then simplified it to a kind of slogan: “Promote technology but stay true to our core values on investor protection and capital formation.”  He appeared to be reading from notes as he answered Rounds, and talking of “at its core” and “core values” seemed to hint at a vague notion of “protection” over innovation.  It’s not a surprise, given the SEC’s role, but defining what “protection” means is ultimately the question we crypto holders need to be answered.
  • Senator Cynthia Lummis (R-WY) went slightly deeper, asking how “consumer protections” for digital asset holders could be provided in a way “that doesn’t hamper innovators.”  Gensler was, in turn, slightly more specific.  He linked “consumer and investor protection” with the custody of digital asset holders’ funds, “ensuring” that the use of private keys “works”, but added that the markets must be “free of fraud and manipulation” – which he called “a greater challenge” because some markets – “usually operating overseas” – have been “rife with fraud and scams”.  This was slightly more encouraging, as no one would argue with that.  However, without clear rules that define what is “fraud” or “manipulation” in the selling of digital currency, or building a network, or distributing a utility token, the SEC has unlimited power to harm investors instead of protecting them.
  • Lummis later asked Gensler to expand on comments he’d made in 2018 about how blockchain can “promote financial inclusion, reduce risk and create new markets”.   He repeated his “catalyst for change” talking point, and noted that central bank digital currencies (CBDCs) are getting more attention from fiat issuers seeking to “provide more inclusive payment structures.”  He added that “other payment system providers” (we can assume he means private companies and developers) are working on offering “payment systems that operate 24 hours a day, seven days a week and at a lower cost, both cross-border and domestically.”  So, Gensler was extolling the very business model being developed by companies like Ripple, when it started distributing the cryptocurrency XRP in 2013 to build a network for such payment systems to be possible.
  • Senator Steve Daines (R-MT) inadvertently asked a question that goes to the heart of what digital asset holders want to know, particularly XRP holders who were unfairly harmed by the SEC’s lawsuit against Ripple.  He asked how the SEC Enforcement Division should decide when it should swing its hammer and when new rulemaking would be more appropriate.  Frustratingly, Gensler didn’t really answer.  He said his “philosophy” around enforcement was about “following the facts and the law where they take you” – which is hard when there is no law pertaining to cryptocurrencies nor specific rules on how they are treated – and that such actions are about “using limited resources to effectuate where there are the greatest problems in the market”, i.e. setting enough examples to make other players change their behavior.  He didn’t answer the question about when rulemaking is needed.  But it does raise a useful question – was the Ripple lawsuit a good use of limited SEC resources to effectively address a widespread problem in the crypto markets? 

Ultimately, there was not enough detail in the few discussions around our concerns to know much.  But there rarely is during a confirmation hearing.  What we can say is there are better questions arising from this hearing that Gensler needs to answer:

  • What does “investor protection” mean for XRP holders who were harmed by the SEC decision to file the lawsuit against Ripple and two of its executives?  
  • What does “promote the technology” mean in real terms for the SEC?  Will it allow payment system providers to build networks and distribute currencies?  What guarantees will it offer them in the form of clear rules?
  • Was the decision to file the Ripple lawsuit the best use of the SEC’s limited resources to “effectuate” where there is a greater problem in the market?

One final observation: ultimately, I was disappointed in Gensler’s testimony. Some will say that I shouldn’t be because his goal, as a nominee, should be to do no harm and get through the confirmation hearing unscathed. I reject that thesis. His confirmation hearing was a formality. Gary Gensler is going to be confirmed as Chairman of the SEC. There is no doubt. He had the opportunity to make the bold statement that the SEC would be different under his leadership. He had an opportunity to embrace technological innovation. Instead, he said the SEC would be technology-neutral. He made it clear that the SEC would not be anti-tech, but I ask you, is being technology-neutral enough in 2021, when the U.S. is losing its leadership role to China, among others?

Gary Gensler is a very intelligent man. He taught blockchain technology at MIT. But today he sounded like a career politician who stuck to his talking points regardless of what was asked.

If Mr. Gensler’s goal was to do no harm to his confirmation today, he succeeded. But the SEC has inflicted catastrophic harm to individual investors and U.S. innovation. He said nothing today that gives me great hope that he intends to fix that or even try. I’d be pleased to be proven wrong after his confirmation.

Gensler Straddles Innovation and Enforcement at Senate Hearing

By Nikhilesh De – March 2, 2021 (CoinDesk)

“I’m neither a maximalist nor a minimalist but I do believe [blockchain is] a catalyst for change,” said Gary Gensler, the potential next chairman of the U.S. Securities and Exchange Commission (SEC).

Gensler was speaking to the Senate Banking Committee, which held a hearing Tuesday to consider his nomination to the SEC, along with President Joe Biden’s nominee to run the Consumer Financial Protection Bureau, Rohit Chopra. 

Gensler’s background suggests he is both pro-crypto and pro-regulation, and it remains unclear if the industry will perceive him as friendly or overzealous on regulation. The hearing didn’t provide too many clues because Gensler was careful to strike a balance between emphasizing regulating suspicious behavior and encouraging new innovations. 

Read the Full Story Here

The Gensler Confirmation Hearing: Two things for you to do

By John E. Deaton, Founder and Host, CryptoLaw.

The U.S. Senate Committee on Banking, Housing and Urban Affairs will hold a hearing today at 10:00am E.T., on the confirmation of Gary Gensler to Chair the U.S. Securities and Exchange Commission.

Every digital asset holder in the U.S. must understand that the next SEC chair will be the most important appointment in the history of cryptocurrencies.  The future of crypto and our future as holders and investors will ride on the actions, and inactions, of the SEC in the next four years.

As the former Chair of the Commodity Futures Trading Commission and an MIT professor who is well versed in blockchain technology, Gensler should know the importance of nurturing innovation. 

He should sit down in good faith with cryptocurrency investors, project developers and companies building blockchain products and get to work with the rest of the Administration on the regulatory framework for digital assets that this country urgently needs.

So here are two things that every U.S. digital asset holder should do:

  1. Watch the hearing at this link.  And pay close attention — not only to Gensler’s answers and responses, but also of whether the senators on that committee are representing your concerns and your interests or not.  Are they standing up for you?  Are they paying attention?
  • Make your voice heard.  Here are the members of the Senate Banking Committee, and how you can reach them on Twitter. 

Don’t be shy

Let them hear you:

MAJORITY:

Sherrod Brown (D-OH), Chairman: @SenSherrodBrown

Jack Reed (D-RI): @SenJackReed

Bob Menendez (D-NJ): @SenatorMenendez

Jon Tester (D-MT): @SenatorTester

Mark Warner (D-VA): @SenatorWarner

Elizabeth Warren (D-MA): @SenatorWarren

Chris Van Hollen (D-MD): @ChrisVanHollen

Catherine Cortez Masto (D-NV): @SenCortezMasto

Tina Smith (D-MN): @SenTinaSmith

Kyrsten Sinema (D-AZ): @SenatorSinema

Jon Ossoff (D-GA): @Ossoff

Raphael Warnock (D-GA): @ReverendWarnock

MINORITY:

Pat Toomey (R-PA), Ranking Member: @SenToomey

Richard Shelby (R-AL): @SenShelby

Mike Crapo (R-ID): @MikeCrapo

Tim Scott (R-SC): @SenatorTimScott

Mike Rounds (R-SD): @SenatorRounds

Thom Tillis (R-NC): @SenThomTillis

John Kennedy (R-LA): @SenJohnKennedy

Bill Hagerty (R-TN): @SenHagerty

Cynthia Lummis (R-WY): @SenLummis

Jerry Moran (R-KS): @JerryMoran

Kevin Cramer (R-ND): @SenKevinCramer

Steve Daines (R-MT): @SteveDaines