What’s Behind the SEC’s New Crypto Proposal?

That’s been one of the central debates surrounding cryptocurrency in recent years: Which digital assets are securities, and which fall outside the Securities and Exchange Commission’s jurisdiction? Congress is still hashing out many of those details in the Clarity Act, but the SEC is moving ahead with its own framework.

This week, the SEC proposed new rules that would create exemptions for certain crypto issuers to raise capital without registering their offerings, while providing a potential path for some tokens to eventually fall outside federal securities laws. The crypto industry is viewing the proposal as a win. “[It’s] an important step toward the clear, fit-for-purpose rules digital asset markets in the United States have needed for years,” Blockchain Association CEO Summer Mersinger said.

What the SEC Is Proposing

The current SEC has made championing crypto one of its main priorities in an effort to reverse course from the last administration, which was criticized for “regulation by enforcement.” Its new proposal largely comes down to providing insight on two questions: When do securities laws apply to crypto, and how can issuers raise capital without facing the same requirements as traditional securities? If adopted:

• Certain crypto startups could raise up to $5 million over four years without registering the offering.
• Other issuers could raise up to $75 million in any 12-month period, although they would face additional disclosure and ongoing reporting requirements.

Golden Years. The proposal would also create a safe harbor that could allow a token to eventually fall outside the securities laws if certain conditions are met. Essentially, the issuer would need to show that its blockchain has become sufficiently independent that it no longer relies on the issuer’s ongoing managerial efforts.

Think of it as a transition from a product to a commodity. People don’t invest in gold because a company is working to make it successful. They invest in gold because the asset itself has value.

Does crypto have intrinsic value? Well … that’s another story.