As the United States Securities and Exchange Commission (SEC) shifts its focus onto digital asset exchanges, one of the largest crypto asset managers, Grayscale Investments, has just had their application for a Filecoin (FIL) Trust product rejected.
SEC’s Enforcement of Unregistered Securities in Crypto Industry
The SEC has a long history of cracking down on unregistered securities in the crypto industry. In February 2021, the watchdog fined U.S.-based crypto exchange Kraken for “selling unregistered securities”. Afterwards, ordered the exchange to shut down its staking-as-a-service program. Even Coinbase received a legal notice that typically precedes enforcement action from the regulator for “potential violations of securities laws.”
Grayscale Investments sought to launch a Filecoin Trust product on April 14 via a Form 10 application to the SEC. It will show the firm’s pre-existing Filecoin Trust become more similar to a public company. In addition, filing quarterly reports on its financial activity. However, the SEC responded with a comment letter on May 16. It contains a warning that FIL “meets the definition of a security” under federal law. Moreover, asking Grayscale to withdraw their application for the trust product. Grayscale noted their disagreement but explained the possibility that they may be forced to dissolve the trust in its entirety.
SEC, Gensler, and Crypto: The Future
The current SEC rulings and warnings seem to go against the crypto industry. Besides, the power to decide the future of the industry lies in the hands of the SEC Chair Gary Gensler. After Biden’s appointment of Gensler in December 2020, he’s already made it clear that he believes most digital assets are securities. It is making it difficult for crypto companies to skirt around the regulations.
The Grayscale Filecoin Trust was launched by the asset manager on March 17, 2021 alongside similar offerings for oracle network Chainlink (LINK) and metaverse platform Decentraland (MANA). These digital assets do not meet the definition of a security according to the SEC, so will be able to continue with their registration process.
Crypto Regulation: Gensler’s Battle for Win-Win Situation
But will Gary Gensler be the final say in the matter of crypto regulation? The crypto industry anxiously awaits Gensler’s ruling as he’s now in charge of the agency that regulates the U.S. securities markets. It’s a win-win situation for the former chair of Commodity Futures Trading Commission (CFTC) as taking a more pro-crypto stance could reap huge rewards for digital assets, and a more restrictive stance would limit substantial amounts of trading and thus the amount of money the industry could make.
Crypto companies will have to battle the current SEC rulings that regulate the crypto industry. They may still find a way to obtain approval but it’ll be an uphill battle. Gary Gensler could have the ultimate say in the crypto regulation debate, as even the slightest change in the regulations could have serious implications for the industry. The crypto industry will be watching the SEC closely and hoping that Gary Gensler will take a more lenient approach to cryptocurrencies.
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