Tough love is the fine line where being strict is for the greater good. This attitude of the chairman of the US Securities and Exchange Commission [SEC], Jay Clayton, has divided the crypto community and has been roundly criticized by the Senate. The general fear is that such strict enforcement by the commission will likely stifle any technological innovation and consequently inhibit free market growth.
There is substantial evidence to suggest that it is a credible strategy in being cautious when dealing with the crypto industry. Recent stats revealed that 2018 saw almost 1800 scams that looked to swindle people or directly manipulate the market, this only on two online messaging applications. Thus when President Trump anointed Clayton as SEC chairman he was expected to be the right man, one to ensure proper enforcement of securities edict. At the same time, it was understood that he would support free market activities and continue to ensure the government pro-business approach.
The Changing Winds
Many had expected the government to boost the nascent tech industry. Instead, At the start of the year, the SEC began a massive crackdown on the general crypto industry. This, Clayton had stressed, was to weed out ICO scams and investigate suspicious market activities that smelled of manipulation. Now many of his critics are saying this cautious approach is bordering on a witch hunt. According to news sources many lawmakers now conclude that though he is vastly experienced with traditional asset management, there is a decisive “lack of vision on issues pertaining to cryptocurrencies”. It has resulted in the US crypto industry being asphyxiated; with its progress stalled toward mainstream adoption, the dreams of being the market leader now lie in tatters.
Lobbyist and lawyer Anthony Tu-Sekine, head of the blockchain and crypto group at Seward & Kissel expressed frustration and confusion as to why an otherwise pro-business Trump administration would employ Clayton. Commenting on this he said, “Jay Clayton has shown the industry that he lives in an ivory tower with his resistance to approving registration statements for token offerings, it is frustrating.”
While the community was hoping for a strong gale of westerly trade winds to drive the markets forward, instead it seems the easterly winds has stalled the industry's growth in America.
Regulatory Clarity Of Paramount Importance
Clayton has not budged from his position and has been remarkably consistent in his implementation. In one month alone, his organization had rejected 9 bitcoin ETF(exchange-traded fund) applications. Each one was, in the eye of the SEC, unable to properly demonstrate their fraud and market manipulation mechanisms.
Even industry heavyweights such as Tyler and Cameron Winklevoss ( of Connectu and Facebook fame), have had their applications repeatedly rejected. This repeated rejections and postponements have been the chief cause of aggravation. Like most in the community, Diego Zuluaga, a policy analyst at the libertarian Cato Institute, has commented at this distrustful approach. He says such repeated rejections are “most disappointing.” More importantly, such a response create a toxic environment that will ensure that the industry will at the very least regress and at best flee to more hospitable climes.
Brushing aside the continuous criticism, the chairman himself holds the firm belief that such strict law enforcement will help the industry grow in the medium to long-term. When giving his testimony in front of the US Senate Banking Committee, earlier this year, he had confirmed his team would look into cryptocurrencies, before adding “I believe every ICO I’ve seen is a security.”True to his word, within a month the SEC began issuing a number of subpoenas to crypto-related tech companies.
The SEC’s “crackdowns” and subsequent tight lease on cryptos has been seen as proof that Clayton is just anti-crypto. The man himself swears otherwise. He has repeatedly defended himself and the actions of his department by pointing out that having increased regulatory scrutiny at this stage will ensure that the nefarious activities are halted and scam artists are caught. This will improve the public perception and benefit the industry. By setting a strict baseline now, the government won't have to adopt such a hard approach later, when the industry might be too deep in the scam quagmire.
“If we don’t stop the fraudsters, there is a serious risk that the regulatory pendulum – the regulatory actions – will be so severe that they will restrict the capacity of this new security.”
All In Good Time
While many are unhappy with this approach, there are some, especially Republicans who see and appreciate the approach Clayton’s SEC has chosen. The crypto industry should expect the SEC to build on the lessons of this year and be able to offer greater regulatory clarity.
Paul Atkins, himself a former SEC chairman, acknowledged the concerns of the public but stated:
“A lot of people would like things to move more quickly, but that’s the system.” He is confident that a positive change is around the corner, “In the new year, you’ll see a lot of these seeds [the SEC] planted will start to germinate.”
In a preview of things that might soon follow two US lawmakers have already proposed bipartisan legislation that looks to prevent price manipulation in the crypto industry. With the market squeeze being felt each day, one only hopes that the bitter medicine being administered by the SEC heals rather than ward the patient off the treatment.