Deciphering crypto

Deciphering crypto

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The SEC’s ‘Crypto Mom’ Hester Peirce says selling fractionalized NFTs could be illegal

Reuters

SEC commissioner Hester Peirce reminded issuers not to accidentally create investment products.

Selling fractionalized NFTs, or NFT baskets could turn them into securities, which are tightly regulated.

‘Crypto mom’ Peirce also thinks the Howey test is not a good way to see if digital assets are securities.

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The Securities and Exchange Commission ‘crypto mom’ Hester Peirce said issuers of non-fungible tokens must be careful they do not accidentally create investment products when selling fractions, or derivatives, of these digital collectors items.

“People are being very creative in the types of NFTs they’re putting out there,” Peirce, who is an SEC commissioner and cryptocurrency supporter, said at Draper Goren Holm’s Security Token Summit on Thursday.

NFTs are designed to be unique and non-fungible, so they are less likely to be securities, Peirce said. However, considering the creative approaches some issuers have been developing, people should be asking questions and being careful, she said.

When selling fractions of individual NFTs, or NFT baskets, “you better be careful that you’re not creating something that’s an investment product, that’s a security”, the so-called “Crypto Mom” said. “The definition of security can be pretty broad,” she said.

NFTs, or non-fungible tokens, have soared in popularity recently and are selling for large sums of money. NFTs are data units, often digital content like a tweet, a meme, a piece of art, or music. Twitter founder Jack Dorsey’s first ever tweet, for example, sold for $2.9 million as an NFT and digital artist Beeple sold a work for almost $70 million, a record high for digital art.

Peirce said the Howey test, which is used to determine whether or not an asset is a security, does not work well for digital assets, as its basic logic does not apply in the same way as it does to physical assets.

Peirce stated the SEC is considering how, and whether, to refine her proposed safe-harbor policy and a revised plan would likely be presented soon. She said she hopes to collaborate with incoming SEC chairman Gary Gensler on this topic and is engaging with the approaches followed by other countries and regulators to help devise a potential regulatory framework.

Peirce’s safe-harbor policy would allow issuers of crypto assets and funds to claim exemption from SEC regulations for three years to protect them from token distribution being classed as securitization immediately. Digital asset investors and creators have shared concerns that SEC regulation would prevent them from being able to set up a broad, decentralized financial system.

“I don’t know how it will all play out, and again, I have a lot to learn from what’s going on in Europe, also what’s happening in Asia, what’s happening in the Caribbean. You know, there are a lot of places that are taking much more forward-looking approaches than we and by ‘forward-looking’, I mean really trying to provide some clarity.”

Good News For Crypto Startups? Coinbase Hiring In India; Govt Seeks Cryptocurrency Disclosures From Companies

While the Indian government is yet to clear the air around its stance on cryptocurrency, the crypto industry is still optimistic about there being no official ban on crypto trading and investments in the country. One of the world’s leading cryptocurrency exchanges Coinbase is looking to set up shop in India, while in an unrelated matter, the government has mandated that companies disclose their cryptocurrency investments in annual filings. Both these developments have given crypto startups and investors hope that a complete ban may not be on the cards for cryptocurrencies in India.

“By housing some IT services, including engineering, software development and customer support operations in India, we will benefit from its huge pool of world-class engineering talent,” Coinbase wrote in a blog post. While the company is starting with remote-first operations, it intends to open an office in Hyderabad and possibly other locations for Indian employees as and when the situation around Covid improves.

Coinbase, which was founded in 2012, is currently in the process of listing itself in US exchanges. The exchange supports cryptocurrencies like Bitcoins and Ethereum, and claims to have over 43 Mn users. The company has also posted job openings on LinkedIn to hire for positions ranging from backend engineers, engineering managers, staff software engineers to product managers.

Besides looking to start operations in India, the company has also backed Indian startups. Coinbase’s investment arm Coinbase Ventures invested in Indian cryptocurrency exchange CoinDCX’s $13.5 Mn Series B round in December last year.

India Seeks Cryptocurrency Disclosures From Companies