The Securities and Exchange Commission is moving closer to regulation. Valerie Szczepanik, the Head of the SEC’s Distributed Ledger Technology Working Group, was elevated to the newly created position of Senior Advisor for Digital Assets and Innovation. In her new capacity, she will advise the Division of Corporation Finance on cryptocurrencies, ICOs and other blockchain-related inventions.
The appointment had the internet abuzz with rumors of the new “Crypto-Czar” but there’s no sign that the Cossacks are coming just yet. If anything, Mrs. Szczepanik’s appointment should be cause for cautious optimism, and a sign that the SEC is trying to understand cryptocurrency offerings rather than curtail them.
The new Senior Advisor is not a complete stranger to the crypto-world, having already represented the SEC at forums like Consensus. “Whether or not you are regulated by the SEC, you still have fiduciary duties to your investors,” she told audiences at Consensus 2017. “If you want this industry to flourish, protection of investors should be at the forefront.” That may not sound like a bull flag, but it’s a lot more favorable than the signals from Jay “every ICO I’ve seen is a security” Clayton.
Explaining the SEC’s reservations on initial coin offerings, Szczepanik told Consensus: “One very active area that we’re looking at is the issuance of tokens or coins on a blockchain —typically you’ll see a lot on the ethereum blockchain—issued under the ERC-20 protocol…We’re looking at those very carefully to determine if that event defines the issuance of a security.” The fact that the new Crypto-Adviser knows what an ERC-20 is, should be cause for some relief.
The appointment may be a sign that financial regulators are beginning to thaw on cryptocurrencies, especially as leading exchanges like Coinbase step up to their legal obligations. Last month the SEC trolled the crypto world with “Howeycoins,” a fake ICO scam whose focus was on educating the public rather than vilifying cryptocurrencies.
In a forum on Financial Fraud earlier this year, Mrs. Szczepanik stated that “We do not want to chill the markets…the promise of blockchain technology is not one that we want to ignore.”
That may sound like playing to the audience, but Mrs. Szczepanik has spoken the same way to in-house crowds as well. In 2016, as head of the SEC’s Digital Ledger Group, she presided over a lengthy panel discussion which put more emphasis on cultivating new shoots than poisoning the weeds. After giving regulators a cogent introduction to smart contracts and blockchains, she stated that “our mission is to protect the markets and investors, but also, we don’t want to hinder the advent of new technology that can help investors.”
However, the fact that regulators are showing a slightly lighter touch should not be regarded as a green light for the Bitconnects and Bitcoiins. Mrs. Szczepanik has already shown little forgiveness for unregistered securities, and as early as 2014 oversaw an investigation into a then-unknown “Bitcoin Entrepreneur” named Erik Voorhees. The investigation led to total fines and disgorgements exceeding $50,000—a large number, in 2014. Since then the body has shown little forgiveness when it came to penalizing ICOs.
All of which suggests that the cryptocurrency would should not expect any free passes from the new SEC regime, nor should it want them. But the appointment of a Cryptocurrency Advisor whose public statements align more with safeguarding investors than looking for whipping-boys, and who seems more interested in crafting appropriate regulations than in jamming new pegs into old square holes, is probably a sign of progress in the relations between crypto-businesses and their regulators.
At the very least, it should be cause to stop panicking whenever the SEC breathes too heavily.
Disclaimer: The Author is invested in Ethereum.