We are all going to have to adjust to how the internet has finally changed global commerce and banking. We can hold on a little longer by continuing to insist on paper billing and writing checks and using cash instead of debit cards or smartphones to transact.
Sooner or later, however, the companies we do business with will force us into the 21st century.
As is happening in other parts of the industrialized world, the United States is stuck at a standstill. Money is still a store of value and a medium of exchange, but while Americans are still using $10 and $20, the rest of the world (especially China) is in the fast lane of zeros and ones.
Cryptocurrency – “crypto” for short – is the future of global finance.
As far as most people know, they see crypto as something that only exists in cyberspace. That’s for geeks to worry about, not normal people. It’s wrong. It is a private exchange mechanism that is fungible and can be used to purchase anything from legal goods to items considered highly illicit, as long as the buyer and seller can come to an agreement.
Sometimes that means exchanging crypto, which goes by many names besides Bitcoin, for real money. Yet for centuries people have used things other than paper and coins like rare gems, precious metals and other raw materials when engaging in transactions. Crypto also falls into this category.
The reason America lags so far behind the rest of the economically developed world is the lack of clear government guidelines. The resulting uncertainty has left the US industry at the mercy of regulators who can’t decide what crypto is and what rules should apply.
The U.S. Securities and Exchange Commission, headed by Chairman Gary Gensler, is taking a punitive approach. He wants to force companies in the cryptocurrency industry to submit to a makeshift yet undisclosed set of rules, ostensibly for investor protection. The Commodity Futures Trading Commission, which also wants jurisdiction over crypto, believes a light regulatory touch is needed for America’s crypto baby to survive its early days.
The SEC’s approach is the wrong one, the consequences of which are exemplified by an ongoing court case brought by the SEC against Ripple, a software company that uses the digital token XRP to speed up international money transfers.
The agency alleges that Ripple sold unregistered securities for distribution. He argues that XRP is a security based on the Howey test, an 80-year-old legal doctrine that uses a four-pronged test to determine what constitutes an investment contract.
To drive the point home, the SEC made the fees retroactive to transactions dating back seven years. It’s a signal for the rest of the industry to go online or face the consequences. In its lawsuit, the agency essentially argues that it is not responsible for its failure to issue reliable guidelines for nearly a decade. It’s not supposed to matter. Worse, the lawsuit drove the value of XRP plummeting for hundreds of thousands of people who used it – many of whom have never heard of Ripple.
Sudden changes in regulation and law can, as they did in this case, wreak havoc on markets. Businesses are supposed to be able to consult the law to know what to do and depend on it to operate consistently. Ripple and other XRP holders are now being punished economically because the SEC changed its position on how the token should be treated.
If this kind of action is to be taken, it should be done through legislation. The US Supreme Court has been clear on this lately. Regulatory agencies cannot expand their work into new areas just because the official, Chairman Gensler, thinks it would be a good, even logical move.
He can’t decide. Neither should the courts. It’s up to Congress to tell the SEC what to do here.
The outcome of this case could have far-reaching implications for the entire fintech industry. If Gensler and the other SEC Democrats can go so far beyond the limits of their crypto directive, what’s stopping them from taking on the industry of their choice?
Peter Roff is a media fellow at the Trans-Atlantic Leadership Network, former columnist for US News and World Report, and senior political editor for United Press International. Contact Roff at [email protected] and follow him on Twitter @TheRoffDraft