Will the SEC regulate Bitcoin?

For years, officials have been discussing what government agencies should regulate Bitcoin (BTC 0.35%). Some believe that the most valuable cryptocurrency should fall under the discretion of the Securities and Exchange Commission (SEC), which oversees securities in the stock markets. Others suggest that it belongs to the Commodity Futures Trading Commission (CFTC), which already handles Bitcoin futures contracts.

While the entire crypto-economy remains in the crosshairs of regulators, it seems that politicians and city officials are beginning to realize that not every cryptocurrency is cut from the same cloth.

The chairman is silent

In a recent interview on CNBC, SEC Chairman Gary Gensler was asked to discuss his views on the future of cryptocurrency regulation in the United States.

While discussing the extent of the SEC’s possible role in the regulation of cryptocurrencies, he specified that one cryptocurrency is different from the rest. He believed that unlike other cryptocurrencies that should fall within the SEC’s jurisdiction, Bitcoin is a commodity and should have a home in the CFTC. Gensler’s reasoning is that there is no central unit behind it as profits and no specific group of entrepreneurs or developers promoting it to lure investors like other tokens out there today. In a roundabout, Gensler pointed out that Bitcoin is decentralized – one of its defining features.

Gensler believes that Bitcoin probably falls under the jurisdiction of the CFTC since it does not meet the criteria for being a security. As a former chairman of the CFTC as well, Gensler probably has more expertise on this issue than anyone else in the U.S. government.

Not only has he served as chairman of both agencies, but he has also taught blockchain and cryptocurrency courses at the Massachusetts Institute of Technology. You can say that he is more than qualified in this type of case.

Pass that test

Of more interest is that Gensler’s comments are also in line with the recent introduction of a bipartisan crypto law drafted by Senator Kirsten Gillibrand of New York and Senator Cynthia Lummis of Wyoming. Although the bill has not been ratified, it is without a doubt one of the most comprehensive legislation on cryptocurrency.

The bill covers a multitude of aspects of the crypto-economy, including stablecoins, mining, and most importantly, which agency monitors specific cryptocurrencies.

In the bill, senators chose to use the Howey test as a means of determining whether a particular cryptocurrency falls under the jurisdiction of the SEC or CFTC. The Responsible Financial Innovation Act proposes that cryptocurrencies that pass the Howey test must register with the SEC like all other securities trading on the stock market.

The Howey test is the result of a 1946 Supreme Court case to determine whether an asset is a security and therefore regulated by the SEC. Assets are considered securities if it is an “investment of money in a joint venture with reasonable expectations of profits from the efforts of others”. In crypto, this means that things like ICOs (initial coin offerings), which use crowdfunding in exchange for a symbol that investors hope to increase in value, are a security.

Title III of the bill states that cryptocurrencies, which are completely decentralized and do not pass the Howey test, will be monitored by the CFTC.

It seems that this section was written specifically for the most decentralized cryptocurrency on the planet.

This decision should be well received by investors, not because the CFTC will regulate better than the SEC or Bitcoin will perform better if monitored by the CFTC, but because even bureaucrats in the highest authorities realize that they cannot regulate Bitcoin like other securities. It is almost a sign of honor that since it was originally designed as an anti-state asset, Bitcoin now receives this recognition of being decentralized from the government itself.

Threatening legislation

The crypto landscape will change dramatically in the coming years. Recent incidents such as the implosion of the Terra blockchain, the bankruptcy lending platform Celsius and the crypto hedge fund Three Arrows Capital, which also went bankrupt, have set a precedent for government intervention to protect investors.

Although regulation is on the horizon, Bitcoin investors should be confident that this forthcoming legislation will treat the most decentralized cryptocurrency differently than the others. Obscure tokens with well-known developers behind them will be in a tough regulatory environment, but Bitcoin will continue to function just as it has since 2009.