At the recent CoinDesk Consensus: Invest conference, Jay Clayton had the opportunity to speak about cryptocurrency ETF approval. Clayton, a chairman of the US Securities and Exchange Commission (SEC), noted that there are some things that need to change in the cryptocurrency industry before this approval happens. The main cause for concern seem to be market manipulation.
“How that [manipulation] issue gets addressed, I don’t have a particular path. But it needs to be addressed,”
Clayton said at the conference. Without this issue being resolved, an ETF remains in flux.
“The prices retail investors are seeing are the prices they should rely on, and free from manipulation – not free from volatility, but free from manipulation.”
The chairman made it clear to moderator Glenn Hutchins that these were the opinions of himself, and did not necessarily reflect on the stance of the Commission. However, he also talked about the categorization of initial coin offerings, and if they classified as a security.
“If you finance a venture with a token offering, you should start with the assumption that it is a security.”
However, not every situation is this simple. For instance, when the moderator brought up Ripple and the XRP token, Clayton explained, “Some of these questions require a lot of information.” He ultimately steered away from answering any questions on this subject.
“Many are very obvious,” Clayton reassured.
“I’m selling you my token, I’m going to go off and produce a venture, and, hopefully, you’ll get a return for having purchased that token.”
For anyone that wants to pitch a token idea to a potential investor, he has some words of advice –
“if there’s a gap between what you’re telling the SEC and what you’re telling people investing in your venture, that’s not a good place to start.”
The conversation turned to the settlements recently announced for two different crypto startups. Even though Clayton clarified that the firms are presently cooperating with the SEC, he also said that the settlements were particular to those companies.
“People should understand that this was the remedy in this particular case but remedies in future cases maybe different. Get your act together.”
All of these responses from Clayton fit well with the actions of the SEC in the crypto industry so far. The path began with the release of a DAO report in July 2017 with regulations that loosely defined securities offerings. Since then, the agency has come a long way, but there is still much to be decided for the nascent market.
Some of the startups in the market have tried to get around regulation by the SEC by calling their tokens utilities and said. However, it isn’t the classification by the exchange that determines the type of token, but the behavior of said asset. Clayton compared this situation to that of a laundry token, saying that a token that washes clothes would not be considered a security token.
“But if I have a set of 10 laundry tokens and the laundromats are to be developed and those are offered to me as something I can use for the future and I’m buying them because I can sell them to next year’s incoming class, that’s a security,”
Clayton said in April.