- For years, US crypto regulation has been slowed by conflict between two regulators that would have been expected to cooperate: the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
- The SEC is responsible for securities, i.e. stocks, bonds, funds, the stock exchanges and everything that falls under securities law. The CFTC is responsible for futures markets, derivatives, commodities and everything related to them, collectively known as “commodities”.
Die SEC With the emergence of the crypto industry, considered itself responsible for almost all digital assets, including those that CFTC just as natural as raw materials and raw material-like goods – Commodities – considered to be within their jurisdiction.
As a result, tensions arose between the two authorities, which became public from the moment the press got wind of it and slowed down the development of the entire US crypto industry.
Regulation through enforcement
The SEC has been pursuing a strategy of suing crypto companies for years, which lasted nearly five years Trial against Ripple is the best known example. This was often followed by compulsory enforcement or, at best, a settlement, which became expensive for the companies affected.
The CFTC, however, argued that digital assets had the essential characteristics of commodities and therefore fell within its jurisdiction.
This ongoing dispute led to an atmosphere of uncertainty in the crypto industry, as even established crypto projects could not be sure whether they would be targeted by one of the two authorities, and accusations of arbitrariness were increasingly voiced.
Congress, which is responsible for legally sound legislation and thus also for the distribution of responsibilities of the executive branch, did nothing but let things take their course.
Several legislative initiatives failed because Republicans and Democrats could not agree. The scandal of the legal vacuum became a permanent condition.
EU set the standard
While the European Union with the MICAR created a comprehensive set of rules, the USA lost touch. Capital flowed out and aspiring talent left because they did not want to work in a jurisdiction that was largely dysfunctional.
International partners also criticized US case law on this point, and the industry increasingly called for a binding decision-making framework.
Against this background, the agreement between the SEC and CFTC on March 11th regarding their responsibilities and the implementation guidelines published on March 17th represent progress, albeit one without a stable legal basis. In any case, it eliminates the legal vacuum that Congress had created through its incompetence.
The agreement between the two regulatory authorities amounts to a declaration of political bankruptcy by Congress, because without its years of total failure the problem would never have arisen.
New taxonomy as a framework
A few days after their agreement, the SEC and CFTC published their joint statement, which contains a consistent classification of digital assets for the first time. A new crypto taxonomy is now at the core of US crypto regulation.
It divides digital assets into five categories and defines which of them fall under securities law and which do not.
The central message is: Most digital assets are not securities. Both authorities are thus abandoning the previously implicit assumption that digital assets initially generally fall under securities law.
This reassessment creates clarity for companies, who now know which regulatory requirements apply. It gives investors security and prevents projects from falling into gray areas due to technical details. Another component of the joint declaration is the so-called lifecycle model.
It states that a token can be issued as part of an investment contract and is therefore initially treated as a security. However, it can lose this status if the investment character is no longer the main focus of its use.
This model corresponds to the reality of many projects and ends the previous practice according to which a token is permanently considered a security once it has been issued in this context.
The mutual statement from the SEC and CFTC also contains clear rules for airdrops, mining, staking and related instruments.
These areas have previously been legally controversial and were sometimes seen by the SEC as indicators of the security nature of digital assets.
The new order creates transparency and prevents technical processes from becoming legal risks.
SEC change of course
The third step that completes the new crypto regulation is the SEC’s paradigm shift. The authority recognizes that the secondary market trading of many tokens cannot be classified as securities trading and adopts the lifecycle model as a binding basis.
This change of course by the SEC is an admission of the agency’s mistaken attitude for years. Criticism from the courts evident in numerous rulings, pressure from Congress and growing international competition have forced the SEC to rethink its strategy.
The agency accepted that digital assets do not fit into traditional securities law and that an order to be created jointly with the CFTC is necessary.
This move will permanently change the American crypto industry. Companies can now operate without constantly having to expect lawsuits.
Investors receive a reliable framework and the USA can make up for lost ground in global crypto development.
Consequences
The new American crypto order is a turning point. It ends the years-long rivalry between the SEC and CFTC, creates clear rules and gives the industry the legal certainty it urgently needs.
It will facilitate the development of new projects, promote investment and strengthen the international position of the USA.
At the same time, it is changing the political debate. In the future, Congress will have to deal with a framework that it did not create itself – and it will probably have to subsequently legitimize it legally.
The discussion will then no longer revolve around questions of principle, but rather around the further development of a system that already works.
The order now enforced by the agreement between the SEC and CFTC is not only the end of a development, but also a new beginning.
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