WSJ: Confusion by SEC Creates ‘Danger’ for Investors

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In Brief
  • The Wall Street Journal criticized the SEC’s approach to regulating cryptocurrencies.

  • The business journal said the regulators’ lawsuit with Ripple Labs creates confusion that could be dangerous for investors.

  • Under new leadership, under Gary Gensler, the SEC is primed to take a more proactive approach to regulation.

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The Trust Project is an international consortium of news organizations building standards of transparency.

The Wall Street Journal editorial board criticized the US Securities and Exchange Commission (SEC) for causing “confusion” in its lawsuit with Ripple Labs. They said the regulator’s approach was “creating danger for currency developers and retail investors.”

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The Wall Street Journal (WSJ) highlighted that cryptocurrencies were “a new force in financial markets.” They singled out the listing of Coinbase on the Nasdaq as a primary indicator of this trend. However, the WSJ criticized the SEC in their approach to regulating cryptocurrencies, citing their ongoing lawsuit with Ripple Labs.

SEC & XRP

In December 2020, the SEC officially charged Ripple Labs and two of its executives with selling unregistered securities. The regulator claimed that Christian Larsen and Brad Garlinghouse profited off the sale of Ripple native token XRP. Regulators claimed that XRP qualified as a security because its developers promoted it and profited from it. 

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However, the tide may be turning in favor of Ripple Labs. In a recent ruling, Magistrate Judge Sarah Netburn said that XRP had value as a utility and a currency. From her perspective, this distinguishes XRP from being a security. Additionally, Ripple Labs’ request to reject SEC subpoenas requesting personal documents of the Ripple executives was successful. 

In turn, Judge Netburn granted Ripple access to the SEC documents relating to their perspective about bitcoin and ether. The SEC believes they aren’t securities because their developers don’t directly profit from their sale. However, the SEC has made no official ruling regarding this perspective.

Instead of providing clarity for the increasing amount of investors in cryptocurrencies, the WSJ admonished the regulator for “preferring to announce its positions through individual enforcement actions.”

Future of the SEC

However, the SEC may now be taking a more proactive role in regulating cryptocurrencies. Last week, Gary Gensler was confirmed as the new Chairman of the commission. Gensler previously taught courses featuring blockchain technology while teaching at MIT. During his confirmation hearing, he said that establishing rules for cryptocurrencies was a priority of his.

Another encouraging figure in the SEC is Commissioner Hester Peirce. She previously spoke in favor of allowing bitcoin ETFs, as a safe, regulated way to expose investors to cryptocurrencies. 

According to the WSJ, she released an updated plan for a “safe harbor” for cryptocurrencies last week. This plan would exempt digital currencies from most securities regulations for a developmental period of three-years. As cryptocurrency advocates have previously said, this temporary exemption would be critical for the development of the nascent industry.

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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