Crypto giants such as Coinbase and Andreessen Horowitz now support the lawsuit against the Securities and Exchange Commission (SEC). The lawsuit filed by apparel brand Beba is against the fuzzy stance of the SEC on crypto regulation. Beba claims in the lawsuit that “unwritten” rules at the SEC crush crypto and blockchain innovation within the U.S. due to a posture of compliance that’s burdensome to business. A case with massive implications for both digital and traditional finance.
What the Lawsuit’s About
According to the fashion company Beba, the SEC enforces rules it has not clearly defined and, in that way, breaks valid crypto enterprise operations. Beba and her allies claimed that the SEC was inconsistently applying the rules against similar crypto projects. This puts operations in a legal gray area. Without clear rules, businesses cannot understand when they may fall in breach of the law until they are handed an unexpected penalty. What they’re doing-arguing such “unwritten rules” represent an unfair barrier to crypto and blockchain development.
Why Crypto Giants Are Taking Beba’s Side
Major crypto firms have lauded the case as fundamental to ensuring a level playing field among market players. For example, Coinbase, one of the biggest crypto exchanges, criticizes the methodology of the SEC regarding innovation in the crypto industry. Andreessen Horowitz, a major venture capital company, insists that similar policies of the same SEC that are already in force press innovation abroad and don’t support growth within the United States.
These companies have submitted an “amicus brief,” a legal document in support of Beba’s argument. In it, they outline how the actions from the SEC are a way of affecting the whole crypto ecosystem and are not some sort of isolated case. They opine that clear rules and consistent application would go a long way for crypto businesses and the growth of the U.S. economy in general
The ‘Unwritten Rules’ in Question
Indeed, much of the cryptocurrency regulation in the United States is inherently wrapped around the definition of a security by the SEC. For the SEC, various digital assets comprise securities; thus, rigid rules should be applied to them. On the other hand, virtual currency companies are saying that there are confusions in the guidelines that are very difficult to act upon. They cite the use by the SEC of the so-called “Howey Test”—a standard set decades ago—to gauge digital assets.
As the Howey Test ascertained when an asset was a security based on investor expectations, crypto leaders believe the test applies little to decentralized digital assets. This, in turn, makes the companies operate in a state of legal limbo where fines and shutdowns This case is highly significant because the DeFi space depends on digital clarity. The essence of DeFi platforms is that they operate independent of traditional finance and without any form of centralized control in many instances. If these various assets from DeFi are classified as securities, they face severe restrictions to the detriment of innovation.
Already, some DeFi projects have relocated overseas to avoid the regulatory uncertainty. Backers of Beba’s cause hope the lawsuit will spur the SEC into articulating rules reflecting contemporary blockchain technology. Their line of argument is that better policy may finally unlock a door and allow DeFi and other blockchain technologies to flourish in the United States.
Possible Consequences of the Lawsuit
If Beba wins this case, it could set a legal precedent that may shape US cryptocurrency regulations for the next couple of years. It may mean the SEC would have to more explicitly determine its position on digital assets, which in return will give US-based crypto firms more predictability, therefore encouraging sector growth.
A ruling in favor of the SEC would strengthen its hands in the regulation of crypto and increase scrutiny. In such a case, it might even persuade some crypto projects to avoid the U.S. market altogether. Whichever the verdict is, both are likely to trigger more deliberations over the regulation of digital assets.
Photo Credit: CNN
