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Whether to consider cryptocurrency as a security or not has always been one of the most debatable questions among crypto enthusiasts, investors and of course lawmakers. Lawmakers haven’t established a concrete definition yet resulting in an unclear and uncertain environment for crypto assets.
Recently, Circle, a prominent crypto company and financial service provider, has come forth and posted a blog post regarding the interpretation of the recent norms implemented by U.S. regulatory agencies including the SEC and the IRS.
In the official blog post, Circle writes:
‘We want to highlight how recent signals from U.S. regulators are creating an uncertain environment for crypto assets, prompting us to take actions that we—and our customers and community—find deeply frustrating.’
Ultimately, Circle argued in favor of the need for a clear, forward-looking regulatory framework for crypto which will lead toward the clarification of a fundamentally new asset class and how to further categorize it into security, commodity or currency.
Most cryptocurrencies can take any given form at the same time depending on the context and its application. For instance, consider an ICO for the development of a gaming platform. The distributed token can be used as in a game referring utility tokes, traded on an exchange that’s a commodity, utilized to acquire virtual goods in an online retailer that represents currency, and finally can also be used to own rights in the company which is security.
Circle has been trying to take this argument to US regulators and policymakers across the world. Furthermore, Circle also asked lawmakers to stop applying laws made in the 20th century to revolutionary technologies such as blockchain which came to existence in the 21st century. They used the example of one of the most popular ‘tools’ to determine whether or not an asset is a security, the “Howey Test,” which was created by the Supreme Court in 1946. The Howey Test simply determines whether or not a crypto asset can be regulated as a security.
Getting frustrated with vague instructions and unclear laws which failed to catch up with blockchain-like innovations, Circle further states, ‘[W]e have paid close attention to guidance from the U.S. Securities and Exchange Commission (SEC).’
Over the past few years, various speeches from the SEC, suggestions of enforcement actions, and analyses about the classification of crypto assets as securities have been observed by Circle which were directly or indirectly addressed to the crypto community. All together comes to the conclusion that if a cryptocurrency comes under criteria of being a security, then the company must register itself with the SEC and follow a wide range of regulatory obligations. If failed to do so, serious penalties can be imposed.