Mark Cuban Says SEC Crypto Registration Would Be ‘Nightmare’

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Cuban weighs in on the crypto regulation debate.

Important points

• Mark Cuban says SEC rules on token registration are a “nightmare waiting for the crypto industry.”
• In the SEC insider trading charges, the commission said nine cryptocurrencies were actually securities.
• Increased regulation can provide more investor protection, but it can also provide more red tape for crypto projects.

It may seem surprising that the SEC’s (Securities and Exchange Commission) move to prosecute three individuals for crypto insider trading has attracted widespread criticism. It claims that a former Coinbase employee tipped off his brother and a friend about which assets would be listed on the exchange.

Surely taking action against insider trading is a good thing? Well yes. But it is not the accusation itself that has the industry up in arms. In its press release about the charges, the SEC slipped in a line that said nine of the 25 assets the trio traded were actually securities. It has not revealed what cryptoassets these might be.

If many cryptocurrencies are actually securities, the SEC could prosecute them for not registering. Any cryptos found to be unregistered securities could face heavy fines and would have to jump through a series of regulatory hurdles to operate and trade in the US. This is why various crypto insiders, including Hai tank judge Mark Cuban, is concerned.

Are cryptocurrencies commodities or securities?

The debate over how to define a cryptocurrency is almost as old as the digital asset industry itself. Right now, most cryptos in the US are classified as commodities, meaning they fall under the Commodities and Futures Trading Commission (CFTC) and do not have to follow the SEC’s security rules. Securities are controlled by the SEC, and there are strict rules on how they can be traded and what information they must report. Many crypto exchanges are not licensed to trade securities.

The SEC is in the middle of a lawsuit against a crypto, Ripple (XRP), which it says has been operating as an unregistered security. The boss, Gary Gensler, believes that a number of existing cryptocurrencies are in the same boat and act as unregistered securities. But crypto executives say the rules aren’t clear and haven’t been properly communicated.

Crypto industry insiders – including the CFTC – accuse the SEC of regulation by enforcement. This is essentially creating rules by prosecuting individual cases rather than creating a clear set of rules that people can follow. In fact, Coinbase immediately filed a petition asking the SEC to develop a “workable regulatory framework for digital securities.”

Why Mark Cuban Thinks It Would Be a ‘Nightmare’

Many in the industry criticize the SEC for pursuing prosecution without first setting clear rules. But for Cubans, it is the very creation of these rules that can create a problem. In response to a tweet from Senator Pat Toomey on the subject, Cuban tweeted: “Think this is bad? Wait till you see what they come up with for token registration. It’s the nightmare waiting for the crypto industry.”

In the past, Cuban has said that he believes more regulation is necessary. The major debate, however, revolves around what form this regulation should take. For example, Cuban believes that crypto regulation should be built around existing fraud laws. He does not want to see a lot of red tape which, as he puts it, will “keep thousands of lawyers employed”.

On the other side of the debate, people like Finance Minister Janet Yellen want to see a “comprehensive framework so that there are no gaps in the regulations”. Various agencies are in the process of responding to President Biden’s executive order, which will create a framework for crypto legislation. It is not yet clear how burdensome the framework will be for existing projects and exchanges.

The bottom line

Increased regulation is coming, and it will have a big impact on the crypto industry. In the long term, it can build trust and give the whole market a more solid foundation. However, it will almost certainly mean that crypto projects will have to follow many more rules, which can be expensive and time-consuming. As a crypto investor, it is worth watching – and even participating – in these discussions. The shape of any new crypto regulation can have a big impact on how your investments perform over the long term.