SEC Threatens Access to Cryptocurrency and Other Digital Goods

The Competitive Enterprise Institute today released a report warning that government regulation of cryptocurrency as a “security” threatens innovation in financial transactions and other consumer products.

“Cryptocurrency could transform financial transactions in America and worldwide, making electronic payment available to businesses and consumers for remote transactions, without need of a bank,” said John Berlau, CEI senior fellow and author of the report. “But regulators at the Securities and Exchange Commission pose a grave threat to those innovations, singling out cryptocurrency firms for more stringent treatment and wrongly claiming authority to regulate digital currency as a security.”

Created in the 1930s to police securities, like stocks, bonds, and investment contracts, the SEC has authority under securities laws to ensure that publicly-traded companies accurately describe to investors the particulars of a firm’s cryptocurrency-related activities – but not to regulate most cryptocurrency products as securities.

The report explains that the SEC’s rationale to regulate cryptocurrency as a security because of the existence of “secondary” trading markets could endanger other digital goods, like airline miles and retailer rewards, both of which can be traded online. That could also give the SEC jurisdiction over physical goods such as comic books and baseball cards, which are sometimes bought as investments. Berlau argues that under current law, most cryptocurrencies can only be regulated as consumer products and not as investment securities.

The report also disputes the notion that the cryptocurrency industry faces boom-and-bust risks that other industries, like Internet firms, have not already weathered and survived. And it delves into the successful history of non-government currencies, from cowry shells to tobacco notes to private bank notes.

When President Trump nominated Jay Clayton to serve as SEC chairman, he said he hoped Clayton would undo many regulations that stifled investment in American businesses and restore sensible oversight of the financial industry. Instead, Clayton has expanded the commission’s reach beyond what Congress intended.

View the report, Cryptocurrency and the SEC’s Limitless Power Grab by John Berlau, CEI senior fellow