John Berlau, a senior fellow at libertarian think tank Competitive Enterprise Institute, criticized the United States Securities and Exchange Commission’s (SEC) approach to regulating cryptocurrencies. Berlau delivered his comments in a report published on April 11.
In a report called “Cryptocurrency and the SEC’s Limitless Power Grab: Why Speculative Consumer Goods Are Not ‘Securities,’” Berlau claimed that blockchain technology and cryptocurrencies are transformative innovations, potential of which has been stunted by “burdensome regulation.”
Berlau stated that “among federal financial regulatory agencies, none poses a greater threat to cryptocurrency and the associated blockchain technologies than the Securities and Exchange Commission.” He argued that the government’s crackdown on the technologies prevents entrepreneurs from experimenting with novel approaches and applications.
Berlau further argued that the SEC’s scrutiny could threaten the functionality of blockchain tech if the agency deems cryptocurrency a “security.” He stated that the SEC’s regulatory approach to cryptocurrencies could harm retail investors:
“Deeming cryptocurrency as a ‘security’ could put cryptocurrency out of the reach of middle-class investors because of the same red tape — both from SEC regulations and from financial regulation laws such as the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 — that has hindered small investors’ access to stock in early stage growth companies.”
The report continues by criticizing the Howey test used by the SEC and Supreme Court to define whether transactions qualify as “investment contracts.” Berlau stated that the test gave the agency “the power to regulate many cryptocurrencies as securities,” thus allowing it to take more drastic measures toward cryptocurrencies than other investments.
Earlier in April, the SEC released a guidance document dubbed “Framework for ‘Investment Contract’ Analysis of Digital Assets” in order to help market participants ascertain whether a digital asset is deemed to be an investment contract, and therefore a security.
Commenting on the document, Berlau stated that it “appears to stretch the Howey Test even further and broadens greatly what products could be considered securities.”