Personal opinion disclaimer

Before I continue, I just want to make it extra clear that any and all opinions expressed in this short article are my own and are not an official communication by FCF Pay. They are intended to spark constructive debate. 

I cannot guarantee the completeness nor accuracy of the information given as this piece is mainly to express my thoughts. Please let me know if there’s anything presented as data that you believe to be factually inaccurate.

Working in the digital assets industry, one has to be careful to not step on the wrong toes! 😉

What is the role of the SEC?

Before I say anything at all about my personal opinion regarding the actions of the Securities and Exchange Commission (SEC) against Binance, Coinbase and others, I think we should first get a little background about the Commission and what its role is supposed to be.

According to this website, the U. S. Securities and Exchange Commission (SEC) has a three-part mission:

• Protect investors
• Maintain fair, orderly, and efficient markets
• Facilitate capital formation

The purpose of the SEC can most accurately be boiled down to the first of the three points above, although I will likely revisit the others at a later date.

The same website also states the following:

The main purposes of these laws can be reduced to two common-sense notions:

• Companies offering securities for sale to the public must tell the truth about their business, the securities they are selling, and the risks involved in investing in those securities.
• Those who sell and trade securities – brokers, dealers, and exchanges – must treat investors fairly and honestly.

Jurisdiction and the definition of a security

Here’s the definition of a security from Investopedia: https://www.investopedia.com/terms/s/security.asp

So, in order for the SEC to take action against a company or individual they have to:

• Officially declare something is a security (otherwise, it’s not under its jurisdiction, even within the USA)
• Prove that the company has done something they shouldn’t such as selling securities without permission or selling something they have defined as an unlicensed or unregulated security (they are somewhat confusingly the authority over whether something is or isn’t the thing that they enforce)
• Prove that it has been offered for sale to US citizens (never forget, the SEC is US-only!)

The definition and regulation of securities in the U.S. is mainly based on: 

• The Securities Act, which was created in 1933 to regulate the US stock market
• The SEC, that was founded in 1934 to enforce the Act
• The current definition of a security was defined in 1946, when the “Howey Test” was created in relation to a case about the sale of land and agricultural services.

This is obviously a very simplified overview, but that’s the general background.

What are their complaints against Binance, Coinbase, etc.?

I’ll leave it to the SEC’s own Twitter account to introduce their complaints in these two tweets, both posted within a 24 hour period and both levelled against prominent crypto exchanges: 

Against Coinbase:

Today we charged Coinbase, Inc. with operating its crypto asset trading platform as an unregistered national securities exchange, broker, and clearing agency and for failing to register the offer and sale of its crypto asset staking-as-a-service program.https://t.co/XPG2gDkxtV pic.twitter.com/hCdVMw8B2v

— U.S. Securities and Exchange Commission (@SECGov) June 6, 2023

Against Binance:

Today we charged Binance Holdings Ltd. (Binance); U.S.-based affiliate, BAM Trading Services Inc., which, together with Binance, operates https://t.co/swcxioZKVP; and their founder, Changpeng Zhao, with a variety of securities law violations.https://t.co/H1wgGgR5ir pic.twitter.com/IWTb7Et86H

— U.S. Securities and Exchange Commission (@SECGov) June 5, 2023

The SEC’s complaints against the exchanges seem to mainly revolve around two points:

1. The sale of unregulated or unlicensed securities (cryptocurrencies)
2. Offering financial products in the form of staking, which allows users to earn a % yield from allowing their cryptocurrencies to be used to secure POS blockchains.

In both cases, the exchanges are loudly protesting that they have been doing their utmost to work WITH the SEC from the beginning of their US activities, that they had been given the all clear by the SEC to operate, yet they are now being accused of wrongdoing post hoc.

I’m a big fan of analogies, so this is essentially the way these cases read to me:

• Dairy Company: Hi, I’d like to offer this milk-free dairy replacement product for sale in the US.
• Dairy Authority: Hmmm… That’s a new kind of dairy product – or at least we think it classifies as a dairy product – that we’ve never seen before. We’ll need to think about it and come up with a legal framework.
• Dairy Company: OK. Let us know what questions you have and what you need us to do. Or maybe we’d need to speak to someone else?
• Dairy Authority: No, no… That’s with us. We’ve had some meetings and we’ll need you to provide a load of documentation and agree to inspections and stuff like that.
• Dairy Company: OK. Here you go. Let us know if you need anything else.
• Dairy Authority: That seems fine. You can go ahead.

<Several years later>

• Dairy Authority (on social media): We have initiated legal proceedings against Dairy Company for selling this new dairy replacement product.
• Dairy Company: But, you said it was OK and more and more people have been enjoying our product…!

Call me crazy, but I’d be wondering who was exerting pressure on the Dairy Authority. Is Big Milk not happy about the popularity of the product maybe?

So, are the SEC really working to protect investors?

So far as I have been able to ascertain, the complaints that have been filed by the SEC are based on “companies not following the rules” and “some maybe securities that we’re not sure about being securities”, not on complaints that have been made be investors that feel they have been treated unfairly. 

Between this and the very political-sounding or headline-oriented announcements on social media, the whole affair feels more like the US public administration flexing its muscles than actions motivated by the protection of investors.

If you have read other blog posts of mine, you will know that I am far from convinced about the benevolence of the fiat system in general.

The kind of systematic clamping down on all things crypto that we’re seeing in the US, which comes at the same time as USD is losing its dominance over the world’s markets, does nothing to strengthen my confidence that US citizens’ wellbeing is the SEC’s main motivation.

Can any good come of this?

In a word, yes.

As a proponent for blockchain-based currencies due to their capacity to de-politicise the global economy, I am delighted to see the crypto community rallying around these companies. I have seen many calls for the movement to stay strong and united, underlining the fact that the decentralised nature of blockchain technology makes it impossible to eliminate altogether.

Likewise, I personally believe that this kind of action serves no clear purpose in terms of encouraging innovation in the financial sector, and even damages the very investors that administrations such as the SEC are supposed to protect. This may ultimately help for the general population to learn about the power of blockchain to return the control of the economy to the hands of the populace.

What do you think?

Should the 1933 Securities Act, the 1946 Howey Test, along with an administration so closely linked to the people that control the issuing of the US Dollar and the centralised financial structure that revolves around it have so much control and influence over a 21st century technology that stands to revolutionise the way people transact with one another in a truly global economy?

Or do you agree with the SEC’s behaviour and viewpoint? This article is clearly biased as it is JUST MY OPINIONS, but I’d be happy to hear counter arguments and chat about them.

Let me know in the comments! 🙂