Cryptocurrency Bill Will Mitigate Key Risks For Web3 Investors, If It Can Pass

It is also worth remembering that unlike the SEC, the CFTC does not have the same investor protection mandate. Investor protection remains a big focus for the Biden Administration and a growing concern in the industry after the LUNA crash a few weeks ago.

Decision Points

Even a truncated version of this bill should have a positive impact on the industry’s ability to grow. As written, cryptocurrency projects that are responsibly set up (have real utility in a layer 1 or layer 2 protocol) and legally compliant will benefit from the additional regulatory clarity.

The bill should also have a calming effect on investors’ fears regarding a regulatory clampdown on certain projects. Projects not yet sufficiently decentralized would be required to file minimum disclosures with the SEC that will be less burdensome than current procedures, but still helpful to investors. Once that project becomes fully decentralized, those reporting requirements would end and compliance costs reduced.

This would also allow cryptocurrency exchanges to feel more comfortable with listing projects where the cryptocurrency associated has real utility. Cryptocurrency exchanges currently put a lot of resources in conducting token reviews, comparing tokens against the Howey Test to try and determine if they feel comfortable listing. Exchanges are also currently in a catch 22, where the SEC has said some are listing many tokens that are unregistered securities and the exchange should be registered as a broker dealer bu it remains a question if the SEC/FINRA will even approve an application to be a cryptocurrency related broker dealer.

Still, cryptocurrency projects that offer a digital asset that provides holders with debt or equity or create rights to profits or other financial interests in a business entity would still themselves need to register and be regulated with the SEC. This still would be helpful to investors because it makes it more clear which projects are embracing regulation and which are trying to avoid regulation and putting consumers at risk.

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