The troll question of all troll questions... The FUD of all FUD... and the one thing that actually causes me an ounce of concern...
When will the SEC decide to apply the traditional definition of a security or investment opportunity to Bitcoins at large, not just to specific applications of Bitcoin investment schemes, and regulate the entire field to death as unregistered issuances of securities. I believe that the Lawsky piece is really a backdoor towards that route by requiring licensed exchanges such that it becomes indisputable that these are being used on exchanges for investment rather than consumption purposes.
The basis for this concern -- W.J. Howey -- also known as the orange grove case. In that case, the W.J. Howey company was selling managed orange groves to people. The court asked two questions: (1) Are the groves being used for consumption (are you eating the oranges) or are you investing in the orange groves for sales; and (2) if you plan on selling the oranges, are the proceeds the product of your own personal labor (are you planting or harvesting your trees) or are the profits incidental to your ownership either by the nature of the product or because it is managed by a third party. Through this analysis, which is used to determine whether something is a security and is therefore regulated by the SEC, the Court determined that the orange groves constituted securities in that context. See also definition of a security from Section 2(a)(1) of the '34 Act (everything under the moon with a doctrinal exception for short-term commercial paper and other treasury stocks because of their purported safety).
More importantly, I suspect that the Lawsky report is a backdoor to paving the doctrinal path towards SEC full-on regulation because on page 14 of the report it states that licensed parties shall only invest in those traditionally safe treasury type securities that are exempted by doctrine from Section 2(a)(1) -- if Bitcoin itself does not fit into that category then it either must be a derivative, be private rather than public, or it falls under SEC registration requirements.
The other big question is whether or not this is a private transaction rather than a public security. This, however, is not much of a question at all. First, the exchanges are public. Second, they are not limited to institutional, wealthy, or sophisticated (in the legal sense which means experienced investors or insiders) and, as such, are subjected to the strictures of securities registration.
Additional questions and concerns are:
(1) Is it not a security, but rather an over-the-counter derivative thus falling under the purview of the CFTC and being broadly excluded from regulation per the Commodities Futures Modernization Act of 2000 and Gramm-Leach-Bliley Act? I believe this is how it has been treated, but this doesn't fit. The IRS deemed it property, not currency. By contrast, the courts have deemed it as functioning as currency. So, which fits in this context? Are Bitcoin trades basically currency swaps or more like an investment in a security or property?
(a) The CFTC argued that swaps and derivatives tied to Bitcoin would certainly come under CFTC regulation and that it should be seen as a commodity for future delivery. But, ask yourself, does this make sense? No, and the SEC doesn't think it makes any sense either. But why?
(i) Bitcoins are for present, not future delivery;
(ii) Leverage, by itself, does not render an item no longer a security -- the underlying bitcoin itself could remain a security even if the derivative attached to it is not; and
(iii) The same coins would be both derivative and security for different counterparties on Bitfinex because the leveraged coins are traded on the exchange, not off the exchange (Plus500 is doing it properly to avoid regulation, Bitfinex is screwed)
(2) Can the SEC regulate a international securities? Yes they sure can and they do. Securities must either be registered with the SEC OR there must be a disclaimer that says U.S. residents cannot invest in it with additional precautions and background check conducted to prevent U.S. residents from using it. Notice again that Plus500 does this already... because their securities lawyer called bullshit on this a while ago;
With this all in mind, the Winklevoss IPO is a bigger event then people realize. If it doesn't get approved then the subtle suggestion is that the Feds might pull the plug on our fun. If it does get approved then this falls into the annals of unfounded concerns.
Note: I did zero research before drafting this very trollish and FUDish post, but I graduated from a T-14 law school. So there.
Note #2: I put odds on all of this actually being a probably at less than 1%. The SEC wouldn't want to piss off all of the hackers in the world and if they were going to do this one would think they would have done it by now.
troll much?
bitcoin doesn't fit anywhere, thats why they are making up entirely new rules. aka BitLicense.
BitLicense will happen, and the ETF will play by wtv rules are set.
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