From now until 2025, the world of blockchain can look forward to at least one friendly face residing at the Securities and Exchange Commission. Earlier this week, Commissioner Hester Peirce was successfully voted into a subsequent term at the regulatory body.
The vote, which took place on August 6th, 2020, was completed by the U.S. Senate. While no outcome is ever assured, this decision had been anticipated for months now, as the initial nomination was put forth six months prior, on February 6th.
A History of Dissent
While there are a variety of reasons that the blockchain and cryptocurrency community have become enamored with Commissioner Peirce – earning her the moniker of ‘Crypto Mom’ – the most obvious is her previous statements of dissent.
A statement of dissent simply refers to the expression of a belief, contrary to those of others, and their actions made. In the past few years, Commissioner Peirce has voiced her dissent on multiple occasions.
Winklevoss Bitcoin Trust, 2018
The first statement of dissent, issued by Commissioner Peirce, revolved around the denial of a Bitcoin based exchange traded fund (ETF) application in 2018. While the main mandate of the SEC is to protect investors, Commissioner Peirce felt their actions did just the opposite. She stated, “…I am concerned that the Commission’s approach undermines investor protection by precluding greater institutionalization of the bitcoin market. More institutional participation would ameliorate many of the Commission’s concerns with the bitcoin market that underlie its disapproval order.”
Exchange Traded Funds (ETF), 2020
In early 2020, Commissioner Peirce reiterated her opposing stance regarding cryptocurrencies and ETF type products. In the time between her initial statement on the Winklevoss fund in 2018 and now, the SEC had gone on to deny various applications – essentially doubling down on their stance. She stated, “…I warned that the Commission’s hesitancy to embrace new products and technologies impedes innovation in this country and threatens to drive entrepreneurs, and the opportunities they create, to other jurisdictions. The Commission’s actions in this area over the past eighteen months confirm these concerns. Meanwhile, investor interest in gaining exposure to bitcoin continues to grow.”
This example is the most recent of the three. Taking place in July of 2020, during a speech at Blockchain Week Singapore, Commissioner Peirce touched on why she thought the SEC’s actions against Telegram were flawed. While her stance was not divulged in an official statement of dissent, it was clear nonetheless. She stated, “Telegram chose to end its legal battle by settling with us. I did not support the settlement because I did not support the underlying action. I do not support the message that distributing tokens inherently involves a securities transaction.”
While it may be easy to disagree with one’s peers, Commissioner Peirce has ensured that she has provided more than just criticisms. Most notable is Commissioner Peirce’s ‘Safe Harbor Proposal’. In the Safe Harbor proposal, companies would benefit from “a three-year grace period within which they could facilitate participation in and the development of a functional or decentralized network, exempted from the registration provisions of the federal securities laws, so long as the conditions are met.” This is an interesting and important approach; time has proven that while many blockchain based assets may begin their lives as securities, they can later transform into a different class of asset. One such example is the wildly popular, Ethereum.
Ethereum, which held an ICO early in its lifecycle, has since become a functional decentralized platform and token. This simple transition, which was always planned, allowed for Ethereum to transform from being a security to simply a token.
By implementing a proposal such as this, innovative and well-intentioned companies would have more leeway to produce next-gen products, without the fear of repercussions from the SEC (providing the companies meet all the conditions). Commissioner Peirce’s Safe Harbor Proposal can be read in detail here.
Despite the SEC retaining a familiar face in Commissioner Peirce, the regulatory body may soon look quite different.
Although talk has died down for the moment, current SEC Chairman Jay Clayton is being floated as a candidate for a position as the U.S. Attorney for Southern New York. If this departure were to occur, Commissioner Peirce would, no doubt, be an exciting prospective replacement for the position of Chairman.
Such a move would, no doubt, be accompanied by differing approaches to blockchain and crypto markets, as Commissioner Peirce has made it clear that she believes the markets are here for the long run. Time will tell if Commissioner Peirce finds herself filling these shoes.
Securities and Exchange Commission
The Securities and Exchange Commission (SEC), is a U.S. based regulatory body, tasked with ensuring fair and transparent markets. This is done through the creation, and enforcement, of various laws surrounding the usage of securities.
Chairman, Jay Clayton, currently oversees operations at the SEC.
In Other News
In early 2020, we were fortunate to have completed an exclusive interview with Commissioner Peirce, herself. In this discussion, we learned more about her approaches to crypto and blockchain, as well as that of the SEC. For those interested in learning more about Commissioner Peirce, this interview can be found in its entirety, HERE.
Nigerian SEC Provides Clarification on Token Offerings and Digital Asset Classification
Investors continue to flock towards assets such as cryptocurrencies and digital securities as, not only a new form of currency but a hedge against global economic uncertainty. As a result, regulatory bodies around the world have had to adapt or clarify approaches towards these alternative asset classes. The latest to do so is the Nigerian Securities and Exchange Commission.
Before jumping into what a few of these approaches are, the Nigerian SEC took the time to allay fears of an unnecessarily strict approach.
“Digital assets offerings provide alternative investment opportunities for the investing public; it is therefore essential to ensure that these offerings operate in a manner that is consistent with investor protection, the interest of the public, market integrity and transparency. The general objective of regulation is not to hinder technology or stifle innovation, but to create standards that encourage ethical practices that ultimately make for a fair and efficient market.”
“The position of the Commission is that virtual crypto assets are securities, unless proven otherwise.”
By taking this stance, it removes the guesswork surrounding the treatment of digital assets. Essentially, it does not matter if an asset fails to fit the definition of a security. In order to be deemed something else, this needs to be proven to the Nigerian SEC on a case-by-case basis. Only then, with the approval of the regulatory body, can an asset be reclassified.
Where the Onus Lies
In addition to establishing its position that all digital assets are to be treated as securities by default, the Nigerian SEC elaborated on where the onus lay for those looking to change the classification of an asset.
“…the burden of proving that the crypto assets proposed to be offered are not securities and therefore not under the jurisdiction of the SEC, is placed on the issuer or sponsor of the said assets.”
Essentially, the Nigerian SEC will not be taking it upon itself to classify every asset. It is the responsibility of a tokens issuer to prove the most appropriate classification.
All Token Offerings Regulated
While the first two points of clarification maintain a focus on investors, a third was made to provide clarity to companies hosting capital generation events.
These events, which include ICOs, DSOs, and IEOs, are all subject to regulation by the Nigerian SEC. There are no forms or variations that ‘skirt’ around existing regulations. As all digital assets are deemed securities by default, this classification spills over into events meant to facilitate their sale/distribution. It is stated,
“…all Digital Assets Token Offering (DATOs), Initial Coin Offerings (ICOs), Security Token ICOs and other Blockchain-based offers of digital assets within Nigeria or by Nigerian issuers or sponsors or foreign issuers targeting Nigerian investors, shall be subject to the regulation of the Commission”
In the ICO boom of 2017, companies around the world took part in these popular means of raising capital. While many were scams, there were still many well-intentioned companies that simply were not well informed. As a result, many hosted ICOs, under the impression that securities laws would not apply when this was simply not the case.
This stance by the Nigerian SEC was made in an effort to avoid this confusion moving forward. While ICOs may not be as popular as they once were, token offerings still regularly occur in the form of DSOs and IEOs.
The Nigerian SEC in its current form was founded in 1979. Much like similar regulatory bodies, it is tasked with ensuring fair and transparent capital markets through the creation and enforcement of regulations.
Chairman, Olufemi Lijadu, along with a 9 person board, currently oversees operations.
In Other News
At the beginning of today’s look at the actions of the Nigerian SEC, we alluded to similar occurrences in a variety of nations. Some of these occurrences involved real change, while others simply clarification. The following are a few examples of these.
FLiK and CoinSpark Orchestrators Charged by SEC for Fraudulent ICOs
On September 11, the SEC announced charges against FliK and CoinSpark, as well as five individuals associated with the two companies. The charges stem from two fraudulent ICOs (FliK and CoinSpark) held in 2017.
With 2020 being a disaster in many ways, it is easy to develop a short term memory of past years. Unfortunately for the bad actors that took part in past fraudulent ICOs, the Securities and Exchange Commission (SEC) remembers.
The charges surrounding these two ICOs are various. Not only did the events represent the illegal sale and distribution of securities, but they were rife with other fraudulent activity.
- Illegal sale and distribution of unregistered securities
- Appropriating and misusing investor funds
- Market manipulation
As a result of these charges, all parties have opted for a settlement with the SEC – each of which consists of restrictions on future market participation, along with fines that range from $25,000 – $75,000 USD.
The aforementioned charges are particularly noteworthy, due to the names attached to these projects. Of the 5 individuals charged, two are well-known celebrities.
Clifford ‘T.I.’ Harris – T.I. is a rapper/actor that not only promoted, and sold FLiK tokens, but also misrepresented himself as a co-owner of the project.
Ryan Felton – Primarily a film producer, Ryan Felton was the main orchestrator behind both illegal securities offerings. The SEC took the time to comment specifically on his actions, stating, “The federal securities laws provide the same protections to investors in digital asset securities as they do to investors in more traditional forms of securities…as alleged in the SEC’s complaint, Felton victimized investors through material misrepresentations, misappropriation of their funds, and manipulative trading.”
Off the Hook?
If there is one individual that may yet rest easy, and be happy with the conclusion of this saga, it would be Kevin Hart.
When the SEC first began investigating the actions of those affiliated with FLIK, Kevin Hart was among those named. Fortunately for the superstar actor/comedian, recent developments indicate that there have been difficulties proving his involvement.
For the time being, there was no mention of Kevin Hart in the SEC’s most recent communication.
Securities and Exchange Commission (SEC)
Founded in 1934, the SEC is a United States regulatory body. Its purpose is to foster fair and transparent markets, through the creation and enforcement of regulations pertaining to assets deemed securities.
Chairman, Jay Clayton, currently oversees operations at the SEC.
In Other News
When looking at some of the other high-profile cases to be settled with the SEC, news of FLiK and CoinSpark seems relatively minor. Despite this, when looking at the big picture it becomes clear that no ICOs are safe from enforcement actions by the SEC. These smaller cases discussed today are simply the latest in a long line of similar instances.
By not letting anyone ‘off the hook’, the SEC is sending a clear message moving forward that the blockchain industry needs to remain mindful of existing securities regulations, and that companies will be held accountable for their actions.
Zug, Switzerland ‘Crypto Valley’ Becomes Latest Region to Accept BTC & ETH as Tax Payments
Over the past few years, various regions around the world have made it known that their intent is to become a hub for blockchain. While a few have managed to cultivate a reputation associated with the technology, it is arguably Zug, Switzerland, that is leading the way. As a result, the moniker ‘crypto valley’ is often used when referring to the region.
Zug continues to bolster this reputation; it has announced that commencing in 2021 the region will begin accepting Bitcoin and Ether as payment for taxes. To use this service, all taxpayers need to do is request a personalized QR code from the Zug Department of Finance for payment.
“As the home of the Crypto Valley, it is important to us to further promote and simplify the use of crypto currencies in everyday life…By enabling the payment of taxes with Bitcoin or Ether, we are taking a big step in this direction.” – Finance Director Heinz Tännler
Using Crypto for Taxes
Along with the decision to accept BTC and ETH as payment for taxes, comes various stipulations. They are as follows,
- Service commences in 2021
- Only Bitcoin (BTC) and Ethereum (ETH) will be accepted
- Payments must be paid in full
- Eligible for tax balances up to CHF 100,000
As the region gears up for this change in 2021, there will be a short pilot program taking place in the coming weeks.
Despite being known as crypto valley, Zug (like most regions) would not necessarily have the technological wherewithal to develop a solution for collecting cryptocurrencies as tax payments. As such, a partnership was struck with the popular broker, Bitcoin Suisse.
In this partnership, a multi-step process is needed to make crypto tax payments possible.
- Bitcoin Suisse collects cryptocurrency tax payments from citizens
- Bitcoin Suisse immediately converts the cryptocurrency to FIAT (Swiss Francs)
- FIAT transferred to the Zug’s Cantonal Tax Office
Naturally, as these are blockchain based transactions, proof of payment and account settlements will presumably be quick and transparent.
A question asked by many is, “how will the government escape the volatility associated with cryptocurrencies when accepting them as payment?” By structuring the payment system in this manner, the Zug Department of Finance is able to avoid this volatility, as funds are immediately converted to FIAT.
“We do not take any risk with this new payment method, as we always receive the amount in Swiss Francs, even if payment is made in Bitcoin or Ether” – Finance Director Heinz Tännler
While Zug accepting cryptocurrencies as a means of payment for taxes is positive news, the region is by no means the first to announce such a step. In fact, it is now the third region in Switzerland to make the decision, with the most recent being the municipality of Zermatt. Notably, it was also Bitcoin Suisse that made the decision possible in each instance.
Outside of Switzerland, there have also been various examples in Canada. As a country that has continually led the way in the growth of blockchain, this is no surprise. From the creation of Ethereum to the launch of the first Bitcoin funds, Canada has remained at the forefront of the industry. These instances in Canada have taken place in Richmond Hill and Innisfil.
The point of all these examples is a simple one – acceptance and adoption of cryptocurrencies is occurring. Although acceptance for tax payments is a great sign, adoption of cryptocurrencies is evident in a variety of ways.
- Auctioning off (viewed as assets of value) – Seized BTC regularly auctioned off by government bodies. In doing so, BTC is given credibility as an asset viewed as valuable by the government itself.
- Regulations – Regulatory bodies have recognized the staying power of digital assets, and have begun to amend and clarify regulations to better suite a future in which they play a role.
- Institutional offerings – Bitcoin Funds, Futures markets, etc.
Playing home to many blockchain oriented companies, Zug is a region in Switzerland, commonly referred to as ‘crypto valley’. It has earned this moniker due to crypto friendly laws and regulations. The region is a relatively small one, hosting a population of roughly 127,000.
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