Game of Tokens: Is the SEC Fueling Crypto Chaos?

Game of Tokens: Is the SEC Fueling Crypto Chaos?

On Sunday’s finale of Game of Thrones, fan favorite Ser Bronn of the Blackwater finally got what was owed to him: a title, a castle, and enough loot to be named Westeros’ new “master of coin.” The actor who plays Bronn, Jerome Flynn, has taken an interest in coin, too – the digital kind. Flynn has joined the advisory board of VeganNation, an Israel-based group with its own cryptocurrency, VeganCoin, to support the “vegan economy.”

How would Bronn counsel the Securities and Exchange Commission (SEC) and other real-life regulators to approach virtual tokens like Flynn’s new venture? That’s unclear, but listening to SEC Commissioner Hester Peirce lately, she’d probably appreciate having her own enforcer who could get U.S. authorities moving on the matter.

Earlier this month, Peirce took the Commission to task for allowing uncertainty to build around digital currencies. “It is not the SEC’s overzealous action that has stifled the crypto industry, but its unwillingness to take meaningful action at all,” said Peirce in remarks delivered at a securities enforcement conference in California. (Peirce’s perceived affinity for digital tokens has apparently earned her the nickname “Crypto Mom” in some circles.)

Peirce may have a point: Crypto-related issues are piling up fast. Last week, for example, a Treasury Department anti-terrorism official said “bad actors” are taking advantage of cryptocurrencies to skirt U.S. laws, a warning shot to crypto businesses to get serious about compliance. Meanwhile, the SEC again punted on two high-profile exchange proposals to list Bitwise Bitcoin ETF Trust on the NYSE Arca  and VanEck SolidX Bitcoin Trust on CboeBZX.

The frustrations with the SEC’s positions – or lack thereof – on crypto go beyond Peirce. Crypto exchange Poloniex announced last week that it was delisting nine of its tokens for trading by U.S. customers. The announcement cited “regulatory uncertainty in the U.S. market” regarding whether cryptocurrencies qualified as securities. That remains a major point of contention in the crypto community, even after the Commission issued some clarifying guidance in April on the conditions under which digital assets are considered securities. The agency has cracked down lately on unlicensed initial coin offerings (ICOs), and it published an investor alert last month warning about bogus claims that ICOs have the SEC’s stamp of approval.

Some crypto startups are looking to the Regulation A+ exemption as a workaround to get their tokens into circulation. The measure provides for companies to raise up to $50 million every year while facing fewer rules than fully registered offerings. At least two companies have filed updated Reg A+ exemption materials since March: Blockstack and Prometheum. However, they shouldn’t hold their breath. On a recent panel, a Paul Hastings LLP counsel Dina Ellis Rochkind noted that “the SEC is moving very slowly in the Reg A+ space because they are fearful of any more exposure to retail investors.”

All in all, things sound pretty chaotic in the crypto world. But if Game of Thrones taught us anything, it’s that “chaos is a ladder.” Bronn himself capitalized on the instability in the Seven Kingdoms to climb up the social ranks. Maybe Flynn is getting into the vegan crypto market at just the right moment.

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