- The SEC does not want to define “digital assets” in relation to hedge funds and private equity funds.
- This is not the first time that the SEC has not decided to define the famous crypto terms, referring back to Ether as a security speculation.
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Despite proposing a definition for digital assets less than a year ago, the SEC needs more time for deliberation.
The United States Securities and Exchange Commission (SEC) is not ready to define “digital assets” for hedge funds and private equity funds, a phrase often used as an umbrella term for assets such as cryptocurrency. , NFTs and others. Nine months ago, the SEC detailed a proposal to define digital assets in relation to hedge funds and private equity funds, although it has now withdrawn its decision.
Back in August 2022, the SEC proposed: “We added Question 66 to section 4 to collect information about private equity fund investment strategies.” This proposal is to define digital assets and add the word to the official definition of funds above.
Instead, the SEC went a different route, writing in its May 3 proposal, “We propose to define the term ‘digital asset’ as an asset that is issued and/or transferred using a distributed ledger or blockchain technology (‘distributed ledger technology’ ), including, but not limited to, so-called ‘virtual currencies,’ ‘coins,’ and ‘tokens,’” with the commission considering these terms interchangeable.
This would be the first time the SEC has used and defined digital assets, but “the commission and staff continue to consider this term and have not adopted ‘digital assets’ as part of this rule at this time.”
Additional proposals are constantly being negotiated, such as last month’s new definition that added “DeFi” and “exchanges” to cryptocurrency in a proposal defining market platforms. SEC Chair Gary Gensler said in response:
“Make no mistake: many crypto trading platforms are already under the current definition of an exchange and thus have an existing duty to comply with securities laws.”
Woe to the SEC
The SEC has been slow to define common terms used in crypto and has even been accused of working against the industry by not establishing a clear regulatory framework. A clear example is the lawsuit against the SEC in November 2022, in which Hodl Law sued the commission after the SEC “failed to clarify its jurisdictional authority over digital assets and failed to determine whether Does this include digital assets as securities.” A lawyer who provides insight into legal issues in the crypto space and the metaverse, took to Twitter to comment on the suit:
2/ The SEC moved to dismiss the case.
In its action, the SEC made this startling statement:
“Hodl Law’s own allegations make it clear that the SEC has not reached a final decision about the Ethereum network or Ether.” (SEC memo, p. 11)
— MetaLawMan (@MetaLawMan) February 27, 2023
MetaLawMan more Tweet: “But somehow, the SEC took 8 years to analyze whether Ether is a security—and it still officially hasn’t decided.” It’s true: The SEC still hasn’t been able to define Ether as a security, with Chair Gary Gensler refusing to mention it even a year ago.
According to the framework of the Howey test for digital assets, the definition of Ether as a security will allow the holding of ETH to be defined as an investment and subject to federal laws that will make it difficult for Ethereum users. This requires disclosure and registration agreements with those listing Ether, causing issues for exchanges listing ETH and for DApps on the Ethereum Network.
Six months after questioning the security status of ETH, the SEC classified nine cryptocurrencies as securities, an action criticized by many in the industry as “regulation by enforcement.”