Why SEC should Adapt the Proposed Blockchain Token Safe Harbor

US Security laws have always failed to agree with blockchain and cryptocurrency companies on all occasions. The US Security and Exchange Commission Usually resort to aggressive actions to suppress cryptocurrency businesses within and outside the United States.

On February 6, 2020, crypto inclined SEC commissioner Hester Peirce proposed an amendment to safeguard the operation of cryptocurrency businesses in the United States.

The spike in cryptocurrencies and blockchain investment happened between 2016 and 2017. Hundreds of cryptocurrency projects seeking funding listed to conduct Initial Coin Offerings (ICO), a form of public Capital raising arrangement. Although most of the projects listing for ICO were legitimate projects, several of them turned to be scammers attempting a get rich quick scheme.

These bad players soon attracted the attention of regulators like SEC after millions of dollars of investor’s money were lost. SEC swang into actions applying existing security laws to token sales and cryptocurrency assets. The commission also toughen it’s public awareness campaign on the risks associated with cryptocurrency investment.

SEC’s enforcement soon introduced another confusion in the cryptocurrency industry. Industry players felt as if SEC was squeezing them out of business since the commission could not make a decision to approve most cryptocurrency projects. This forced some projects to launch from abroad and later try to gain SECs approval while in operation.

Luckily, one of SEC’s commisers found it was unfair to suppress part of the financial sector yet the other is continuing to trade normally. She then proposed a safe harbor to safeguard cryptocurrency businesses both in the US and beyond. These are five unbiased reasons why we think her proposal is right in accordance with the rule of business existence.

Investments are Different from Investment Contracts and another form of Securities

Existing security laws don’t differentiate between investments and investment contracts.  Under the law of the United States, not all investments are Securities. There is a difference between Securities and Commodities and they are regulated by two different bodies, the SEC and the CFTC.

The Commissioner Peirce proposal agrees that there are some types of investments that aren’t Securities and many types of Blockchain tokens are not an investment at all. However, it is sometimes hard to tell the complete difference between the two. The proposal finds a relevant description and treatment of the two assets.

A Blockchain Token isn’t a fixed Constant

Since Blockchain tokens are digital, there is no fixed definition of tokens. Tokens can be in the form of a digital representation of either tangible or intangible assets. It is easier to create intangible items as they get their true value from the trust. Tangible items are linked to their digital representation through a promise to deliver a physical item. Tangible items can be represented in any type of databases including Blockchain. 

Understanding functions and features of digital items is vital for it’s classification and regulation. The proposed date harbour simplifies the regulatory approach under Securities laws. It safeguards investors through disclosure requirements and anti-fraud provisions during token sales.