Bitcoin Backers to SEC: Exempt Us from Oversight

Summary

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WSJ Your Money Briefing — "Bitcoin Backers to SEC: Exempt Us from Oversight"

Date: April 20, 2018
Host: Charlie Turner
Guest: Gabriel Rubin, WSJ Reporter

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Episode Overview

This episode delves into the ongoing push by the cryptocurrency industry and its key venture capital backers to exempt digital coin offerings from U.S. federal securities oversight. The conversation unpacks recent lobbying efforts, the SEC’s stance, the current (and complex) regulatory landscape, and the strategic maneuvers happening at both national and global levels. The episode also addresses what may lie ahead as regulators and the industry continue to grapple for influence over the rapidly evolving crypto sphere.

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Key Discussion Points & Insights

1. Industry Lobbying Efforts ([03:00])

• Venture capital heavyweights, Andreessen Horowitz and Union Square Ventures, recently met with the SEC (March 28) to press for a regulatory "safe harbor" for token offerings.
• Argument: Tokens are distinct from traditional securities and should be regulated differently to allow innovation and growth.

“Token offerings are unique and they should fall under a sort of safe harbor designation that would exempt them from a lot of existing securities laws… really allow the crypto space a lot of room to grow without regulatory oversight.”
— Gabriel Rubin (03:14)

2. The SEC’s Position ([03:44])

• The SEC views most token offerings as securities. Their core philosophy: Novelty does not preclude regulation.
• "If it walks like a duck, quacks like a duck, then it’s probably a duck"—the SEC sees many tokens as clear fits under securities law.

“Cryptocurrencies might be a novel asset class, but nothing is new under the sun... The SEC essentially looks at token offerings and so far has said that they meet the definition under securities laws to be regulated as securities.”
— Gabriel Rubin (03:48)

3. Products vs. Investments – The Crypto Industry’s Argument ([04:26])

• Crypto backers claim: Tokens function more as products, giving access to services/networks rather than representing investments.
• The SEC disagrees, mainly due to the potential for profit and resale.

4. Patchwork of Regulation ([04:55])

• There is no single regulator for cryptocurrencies in the U.S.; oversight varies by type and function:
  • Bitcoin futures: Regulated by the Commodities Futures Trading Commission (CFTC).
  • ICOs (Initial Coin Offerings): Regulated by the SEC.
  • Anti-money laundering & related issues: Overseen by banking regulators and FinCEN (Treasury).
• Fragmented global landscape; regulation “depends more on what the asset class is doing.”

"It’s really a wide patchwork and it really depends more on what the asset class is doing as opposed to just one regulator for the entire."
— Gabriel Rubin (05:35)

5. Scope for Exemption & "Wiggle Room" ([05:46])

• The SEC may consider limited exemptions, but not a broad industry carve-out.
• Potential criteria: Investor limits, restrictions on resale and profit—but these would be narrowly applied.

6. The Global Dimension (& Regulatory Arbitrage) ([06:27])

• Cryptocurrencies’ borderless nature means firms can shift headquarters to more favorable regimes (e.g., Cayman Islands, Singapore).
• Raises the specter of regulatory arbitrage—a game of global whack-a-mole.

“There will be a game of regulatory arbitrage... how easy it is for some of these firms to leave the United States and set up shop elsewhere where the rules might be more favorable.”
— Gabriel Rubin (06:39)

7. What’s Next? The Path Forward ([07:16])

• The field is "just at the beginning" of its regulatory journey.
• Expect a continued focus on enforcement actions and negotiations, rather than new sweeping rules in the near term.
• Two possible futures:
  • A federal regulatory framework emerges.
  • The industry self-regulates via a quasi-regulatory body that collaborates with government.
• Growth trajectory compared to the early Internet—future regulations and boundaries remain unwritten.

“People think this is going to be like the Internet. So if it really is, then we’re just at the beginning of this and we haven’t even scratched the surface in terms of what future regulations might look like.”
— Gabriel Rubin (08:18)

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Notable Quotes

• “If it walks like a duck, quacks like a duck, then it’s probably a duck... So the SEC essentially looks at token offerings and so far has said that they meet the definition under securities laws to be regulated as securities.”
  — Gabriel Rubin (03:48)

• “There will be a game of regulatory arbitrage and sort of whack a mole... firms leave the United States and set up shop elsewhere where the rules might be more favorable...”
  — Gabriel Rubin (06:39)

• “People think this is going to be like the Internet... we haven’t even scratched the surface in terms of what future regulations might look like.”
  — Gabriel Rubin (08:18)

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Important Timestamps

• 03:00 – Venture capital's meeting with SEC and their arguments.
• 03:44 – The SEC’s regulatory philosophy on cryptocurrency.
• 04:55 – Breakdown of the current regulatory landscape (who oversees what).
• 05:46 – SEC's potential openness to limited exemptions.
• 06:27 – Discussion on international crypto regulatory regimes and arbitrage.
• 07:16 – Gabriel Rubin’s perspective on the future of crypto regulation.

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Summary Flow & Tone

The discussion is brisk, factual, and slightly skeptical—reflecting the mix of regulatory caution and industry optimism. The episode lays bare the fundamental impasse between the fast-moving, innovation-minded crypto sector and the methodical, precedent-driven regulatory world. Both guests underscore a sense of inevitability: cryptocurrencies will require oversight, but the details and ultimate structure are very much in flux.

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For listeners wanting to understand the crux of the U.S. regulatory debate on cryptocurrencies in 2018—and how wider global forces muddy the waters—this episode provides an accessible, grounded primer on a swiftly changing topic.

Transcript

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[Charlie Turner]

Money in Market Stories from the Wall Street Journal I'm Charlie Turner in New York. The cryptocurrency industry is lobbying against tighter regulations that they say would be unfair to their business. We'll explore this in a Mom moment. First, here are some money headlines. The Wall Street Journal's Moneybeat team says the threat of a more restrictive U.S. trade policy is already having an impact on the U.S. economy. It's a development that stands to keep investors on edge after a period of stock market volatility. President Donald Trump's announced tariffs on steel and aluminum, as well as his threat of further tariffs aimed at China are driving up the cost of steel, according to the Federal Reserve's Beige Book survey of the central bank's 12 districts released this week. From one Beige Book anecdote, a firm in the Bo the Boston district reported that thin gauge foil is produced only in China and tariffs raised the price threefold. The contact argued that these tariffs are now killing high paying American manufacturing jobs and businesses. Investors are predominantly worried that a trade war could drive up prices of goods or weigh on consumer confidence, both of which could hit companies and their share prices. Some news from the Journal's Hurt on the street team is enough to make investors toss and turn at night. Shares of Sleep Number plunged Thursday after the company posted disappointing quarterly results. Sales fell 1% compared with 12% growth in the year earlier period. Gross margins fell too, and earnings per share declined by 7%. Sleep number makes those widely advertised beds that can adjust firmness according to the preferences of users. It blamed poor results on its transition to a newer, more advanced series of beds that can diagnose sleeping patterns. While that sort of data may or may not attract buyers, the company's own numbers are disquieting, with earnings over the past 12 months of just $61 million. Sleep number still market value of $1.2 billion, down from $1.8 billion this time last year, according to FactSet. Coming up, Bitcoin backers are telling regulators back off. This is your Money Briefing from the Wall Street Journal. Welcome back. How closely should bitcoin be regulated? The Wall Street Journal says cryptocurrency firms and their venture capital investors have lobbied regulators, saying the cryptocurrency industry should be exempt from federal oversight. They argue that oversight from the securities and would slow digital coin growth let's get more on this from Wall Street Journal reporter Gabriel Rubin, who joins us from Washington. Gabriel, on the subject of lobbying, you write that there was a meeting late last month between Silicon Valley backers of digital currencies and the sec. Now, what were some of the firms and what was their basic argument?

[Gabriel Rubin]

That's right. So on March 28, partners from Andreessen Horowitz and Union Square Ventures, both of which are Silicon Valley and New York based venture capital firms, met with the to discuss token offerings and whether those should fall under existing securities laws. And basically the argument from these venture capitalists, as well as some other cryptocurrency lawyers and lobbyists, was that token offerings are unique and they should fall under a sort of safe harbor designation that would exempt them from a lot of existing securities laws, which would really allow the crypto space a lot of room to grow without regulatory oversight, which is something that regulators don't seem to be receptive to.

[Charlie Turner]

What is the securities and Exchange Commission's argument?

[Gabriel Rubin]

So their argument, like other regulators in Washington, is that cryptocurrencies might be a novel asset class, but nothing is new under the sun. And a lot of these things, if it walks like a duck, quacks like a duck, then it's probably a duck or in this case a security or a commodity. So the securities and Exchange Commission essentially looks at token offerings and so far has said that they meet the definition under securities laws to be regulated as securities. And they have taken enforcement actions and had a lot of conversations with these crypto firms using that basis that they're going to regulate them as they would other securities offerors.

[Charlie Turner]

The securities and Exchange Commission oversees US Financial markets, and cryptocurrency backers say digital coins shouldn't be treated as investments, but products. I guess you write here they argue that the tokens aren't investments, but products that can be exclusively used to access services or networks provided by startup companies. This, according to cryptocurrency backers who are at this meeting now, is there currently any sort of regulation of cryptocurrencies and blockchain?

[Gabriel Rubin]

So it's growing and it's been sort of a patchwork both globally and in the United States. There's no single regulator for Bitcoin and other cryptocurrencies. So it really depends on how the offering or how the asset is packaged, essentially. So you have Bitcoin futures offered by a couple of derivatives exchanges, and those are regulated by the Commodity Futures trading commission. But ICOs, or initial coin offerings, are regulated by the securities and Exchange Commission. Other aspects of virtual currencies might be regulated by banking regulators. For instance, anything having to do with anti money laundering would be either the banking regulators or FinCEN, which is part of the Treasury Department. So it's really a wide patchwork and it really depends more on what the asset class is doing as opposed to just one regulator for the entire.

[Charlie Turner]

Is there any sort of wiggle room here as far as the SEC is concerned? Would they offer some sort of exemption based on what the sales are, the amount of the sales?

[Gabriel Rubin]

So it's unclear exactly what type of exemptions the SEC would be willing to consider. They certainly wouldn't be likely to consider a broad exemption, which is what some of these crypto industry folks are asking for. They're more likely to offer limited exemptions from oversight based on whether a company's token sale is capped at a per investor limit and whether it could be resold at a profit to third parties. So there really would have to be very specific definitions for a token sale that didn't fall under securities laws.

[Charlie Turner]

Obviously cryptocurrencies are global. So would US Regulators reach extend only so far because, you know, it's become a global phenomenon?

[Gabriel Rubin]

Well, there is a concern certainly that there will be a game of regulatory arbitrage and sort of whack a mole by global regulators just because of how the market for cryptocurrencies is and how easy it is for some of these firms to leave the United States and set up shop elsewhere where the rules might be more favorable to their business in places like the Caymans or Singapore or other places around the globe that actually are marketing themselves as markets for cryptocurrency firms where they can sort of get away with more than they would be able to do in the United States or in other places that are cracking down like China or South Korea.

[Charlie Turner]

Obviously this is to be continued. Gabe, where do we go from here? That meeting was March 28th.

[Gabriel Rubin]

So regulators are spending an immense amount of time on cryptocurrency issues. And we're really, really just at the beginning here. I think you will see a largely hands off approach when it comes to new rules altogether for the cryptocurrency space. But I do think that we will continue to see lots of enforcement actions, lots of conversations between regulators and these cryptocurrency firms. And essentially as the industry becomes more mature and and has good legal representation and continues these conversations, I think you will possibly eventually see a regulatory framework coming out of the federal government or alternatively, and this is what the crypto industry would probably prefer. They will sort of set up their own quasi regulatory body that sets stand and works along with federal and state regulators to make sure that bad actors aren't running rampant in the market. But you know, nonetheless allows them a lot of wiggle room in terms of how they develop their businesses and how this entire space develops. I mean, people think this is going to be like the Internet. So if it really is, then we're just at the beginning of this and we haven't even scratched the surface in terms of what future regulations might look like.

[Charlie Turner]

Absolutely. Wall Street Journal reporter Gabriel Rubin joining us from Washington. Thanks, Gabe.

[Gabriel Rubin]

Thank you.

[Charlie Turner]

And that's your money briefing. I'm Charlie Turner from the Wall Street Journal.

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