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House Financial Services Committee Slams SEC’s Approach to Digital Assets

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  • The Committee wrote to SEC Chair Gary Gensler on March 18th.
  • Bittrex exchange CEO and issuers allegedly evaded securities laws.
  • Gensler: The crypto market lacks ‘regulatory compliance’ and not ‘regulatory clarity.’

Committee Alleges Gensler Misrepresented SEC’s ‘Non-Existent Registration Process’

All the Republicans of the House Committee on Financial Services, led by Pattrick McHernry (NC-10) ‘slammed’ the SEC for adopting an arbitrary approach to regulate Digital Assets market participants.

The committee alleged that ‘the SEC has forced digital asset market participants into regulatory frameworks that are neither compatible with the underlying technology nor applicable because the firms’ activities do not involve an offering of securities.’

‘As Chair, you have acknowledged that digital asset trading platforms do not perfectly fit under existing laws and regulations.’

The committee wrote that despite acknowledging the fact that National Securities Exchange laws don’t fit the digital asset ecosystem, Gensler is forcing digital asset trading platforms to ‘come in and register.’ The committee argues that there is no set path for these market participants to ‘register’ as exchanges and that these trading platforms do not offer ‘securities.’

The existing NSE framework cannot regulate digital assets because it does to recognize the uniqueness of digital assets. ‘Many digital assets are developed for the purpose of being used within a developing system, are capable of being used in non-securities transactions, and are meant to be consumed and used in the protocol for which it was designed.’

Since the assets offered on the trading platforms are not securities, the platforms cannot register under the NSE laws, and as the committee writes, this ‘inability to register makes the current NSE framework ill-suited for digital asset trading platforms.’

The SEC chairman allegedly misrepresented ‘SEC’s non-existent registration process’ without laying down any airtight rules. A day earlier, the Chair reiterated that regulatory compliance and not regulatory clarity was the issue with the crypto market.

SEC Alleges Bittrex Violated Securities Laws

Referring to yet another enforcement action by the federal watchdog, Chairman Gensler reiterated that the crypto market lacked regulatory compliance and not regulatory clarity.

On March 17th, the Securities and Exchange Commission (SEC) charged Bittrex Inc. and its CEO William Shihara for ‘operating an unregistered national securities exchange, broker, and clearing agency.’ It also charged Bittrex Global GmbH, Bittrex’s foreign affiliate ‘for registering as a national securities exchange in connection with its operation of a single shared order book along with Bittrex.

Since the SEC believes (and does not claim explicitly via any codified document or law) that cryptocurrencies are securities, Bittrex violated securities laws by facilitating the trade of crypto. Essentially, according to the SEC, Bittrex operated as a ‘clearing house,’ like the New York Stock Exchange, which means it was legally bound to register as an exchange with the SEC.

It should be noted that the SEC does not call these Digital Assets ‘securities’ per se, rather, it alleged that Bittrex ‘offered’ these assets as securities.

Bittrex Had Issuer Applicants Remove Info that Could Attract Regulatory Attention

Allegedly, when William Shihara was the CEO of Bittrex between 2014 and 2019, those who wanted to issue their assets on the exchange had to remove public information associated with their Digital Assets, like ‘price predictions,’ ‘prediction of profits, etc. Per the SEC, these statements could have led the agency to investigate whether the assets were being offered as securities.

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