Cryptocurrency investment firm Paradigm argues that the present SEC disclosure framework is ill-suited for the crypto markets.
“Unsurprisingly, without significant changes to the SEC’s current disclosure regime, the SEC is unable to regulate crypto asset markets effectively,” stated Paradigm.
According to the firm, the distinction between traditional securities regulated by the SEC and cryptocurrency assets is rooted in technology. Paradigm highlights the stark contrast between stocks and bonds, and cryptocurrencies. While stock or bond owners hold a stake in the legal entity that initially issued the share or bond, crypto assets are not tied to the value of the issuer, as they exist independently.
Paradigm’s proposed framework and SEC’s ongoing crypto controversies
Paradigm proposed a framework that would more effectively regulate crypto markets, including recognizing that “crypto assets operate, trade, and settle on a very different technology ‘stack’ than that used for the trading of securities.” Additionally, the framework should acknowledge that cryptocurrencies can accrue value in ways distinct from traditional securities.
Paradigm published a brief on tokens-as-securities in March in response to the SEC’s claim that former Coinbase product manager Ishan Wahi engaged in insider trading with crypto assets considered securities. Both Wahi and Coinbase refuted the SEC’s allegations.
Earlier this month, the SEC charged crypto exchange Bittrex for listing six tokens classified as securities under the Agency’s jurisdiction, specifically targeting DASH, ALGO, OMG, TKN, NGC, and IHT. However, when questioned by Patrick McHenry, chair of the Financial Services Committee, SEC Chair Gary Gensler could not definitively state whether ether is a commodity or security.
Former SEC Chair Jay Clayton told CNBC that “things can go from being a security to not a security” when asked the same question posed to Gensler.
Paradigm emphasizes, “In addition to clarifying whether (or when) crypto assets are securities, the SEC must clarify what type of securities they are.”
