The big Silicon Valley venture capitalists are some of the major backers of crypto and blockchain startups. Andreessen Horowitz, Union Square Ventures and a host of others have invested in notable projects like Tezos, Bancor etc. Now, they are looking to step in and limit the dragnet being cast over crypto and blockchain projects by regulatory agencies in the U.S.
According to a report on the Wall Street Journal, officials of notable Silicon Valley venture capital firms had a meeting with the Securities and Exchange Commission (SEC) in March 2018. Unnamed sources with insider knowledge claim the meeting was about laying the argument that excessive regulations could harm the industry and slow the pace of useful blockchain innovations.
The cryptocurrency market is presently facing a veritable “alphabet soup of regulators” as virtually every single regulatory agency in the country has come down hard on the industry. The SEC, the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS) have taken a firm regulatory position against the market. Banking regulators aren’t left out as they constantly police the crypto payment infrastructure seeking tax evaders and money launderers.
All of this raises a big issue of who has jurisdiction over what, an issue that if not left resolved could threaten the survival of the nascent crypto market. According to Jason Weinstein, a partner at Steptoe & Johnson LLP, a crypto-focused law firm, innovators and investors cannot “wish away government oversight.” Steps must be taken to ensure that such oversight doesn’t cripple the market. Apart from making their case to the SEC, the big Silicon Valley players are also employing lobbying efforts in Washington to reduce government oversight.
The major bone of contention between crypto proponents and regulatory bodies like the SEC and CFTC is the definition ascribed to a cryptocurrency token. Regulatory agencies believe many of the tokens are indeed securities (tokenized securities) and as such, as subject to securities law. On the other hand, crypto proponents argue that these tokens are merely utility tokens which allow users to access a particular digital ecosystem.
The big venture capital firms want the SEC to issue a broad exemption to the crypto and blockchain startups. This means such startups will be able to sell tokens to investors without providing detailed financial statements and business descriptions. The SEC for their part aren’t keen of such a broad exemption but some insiders report that could concede to giving a limited exemption if some certain conditions pertaining to investor cap and token lock-in periods are met.
There have also been increased calls for self-regulation in the industry. According to Jerry Brito, the executive director of Coin Center, policymakers in the industry would welcome a self-policing regime in the industry. The Winklevoss twins in March proposed an idea for self-regulation for bitcoin exchanges and it is an idea that is being pursued in many places around the world as a better alternative to increased government regulations.
The influx of institutional investment into the crypto helps also helped to enhance the legitimacy of the market. The launch of the CME and Cboe bitcoin futures trading in December 2017 was seen a victory by many crypto proponents and a huge leap towards legitimizing the crypto market as a whole.