Jay Clayton Copyright Chip Somodevilla, Getty Images
SEC Chair Jay Clayton

A Rose by Any Other Name: SEC Clarifies Cryptocurrency Rules

“We’ve got guys with bags of cash headed for the border” because of unregulated crypto offerings, says SEC Chairman Jay Clayton. “I’m protecting the integrity of the market.”

The SEC won’t be changing its rules for crypto assets, SEC Chairman Jay Clayton said Tuesday at the Sandler O’Neill Global Exchange and Brokerage Conference in New York City. He broke down cryptos into two definitions: “sovereign currency substitutes,” like bitcoins, and “crypto assets that are securities.”

The second category, which Clayton clarified with an example of a “token” purchased as part of a “venture” that has an expected return, is a security. “Those are securities and if you’re going to offer them, you either have to do it like a private placement or you have to comply with our public offering rules,” he explained. “I’m not going to change the way we approach the offer and trading of securities as a result of the fact that you put them in the form of a token.”

“We managed to build a $19 trillion economy following those rules,” he added.

The distinction is becoming increasingly important for the crypto community, including investors and exchanges, like Coinbase. The company, which says it’s one of the largest crypto exchanges by volume, has been adding new products for institutional investors who benefit from regulators’ clarifying statements. Coinbase, for example, only deals with a limited number of crypto assets and notes that “unsupported digital currencies or tokens sent to a Coinbase address will effectively be lost,” including initial coin offerings that are unsupported by the exchange.

Coinbase has been working to expand to Japan and recently announced a crypto storage solution and enhanced trading tools available to customers. Futures markets have also been helping to bring new customers to the platform. “We’re excited to see the entry of traditional players into the crypto space because we think it helps drive the validation of crypto as a new, legitimate asset class. That’s good for crypto and that’s good for Coinbase, obviously,” Kayvon Pirestani, director of the company’s institutional sales, said at the conference.

Other cryptocurrency-exposed companies agree. “The SEC’s steadfast yet proactive approach on Bitcoin and other cryptocurrencies shows the sector is increasingly mainstream,” said Nigel Green, founder of deVere Group, which operates a crypto trading exchange app. “This clarification by the SEC removes some of the uncertainty that has been swirling around the crypto sector and serves to strengthen the overall proposition of many of the major cryptocurrencies.”

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