Bitcoin maximalists have little in common with memecoin enthusiasts – except when it comes to the subject of regulatory clarity, or the lack thereof, in the digital asset industry. For years, industry watchers have called for clearer rules for cryptocurrency, complaining that U.S. regulators have often made their views on the subject known only after bringing an enforcement action, where they have alleged several tokens are actually securities.
Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC), has stated on a number of occasions that the rules are clear for crypto exchanges who should “come in and register” with the agency. Crypto firms say otherwise, with some like Coinbase now attempting to use legal action to compel the SEC into responding to a request for rulemaking.
However, the founders of two firms that have been approved by the Financial Industry Regulatory Authority (FINRA) to operate as broker dealers for digital assets seem to share Gensler’s opinion. In an episode of Unchained, Aaron Kaplan, founder and CEO of Prometheum and Rosario Ingargiola, founder and CEO of Bosonic explained why they believe federal securities laws apply to firms operating within the crypto space.
For Kaplan, this became clear when the SEC released an investigative report in 2017, concluding that DAO tokens were securities. Prometheum was started shortly after, with the intention to create a compliant ecosystem for trading digital assets under securities laws. In 2021, the firm was approved as an Alternative Trading System (ATS) for digital assets, and was recently approved as a special purpose broker dealer.
Meanwhile, Bosonic has a broker dealer license and ATS license for both digital assets and digital securities, which are “securities managed on a blockchain,” regardless of whether they have a private or public ledger, explained Ingargiola.
Ingargiola believes that a big part of why Bosonic was approved so quickly was because of its system designed around custodian driven settlement mapped well into the SEC’s “Three-Step-Process.”
“So we had a really clear path to basically comply with all of those rules,” Ingargiola said.
Kaplan claims that a clear framework to actually custody digital assets under securities laws was adopted into the federal register in April 2021. The fact that Prometheum was approved as a special purpose broker dealer negates any argument that this framework had not received an official approval, he said.
“And as Chairman Gensler has said, the overwhelming majority of digital assets are securities, so let’s analyze what that means. That means that they have to be traded, custodied handled, et cetera under the securities laws,” said Kaplan.
In his view, this means that existing crypto financial services firms are not operating with the “proper licenses” and are likely using an “obsolete tech stack.” He opined that these firms need a big rebuild to become fully compliant.
“It’s a big process and it would take them a significant amount of time. So instead what we see is that they move to fight in the court of public opinion, which I would argue is always a sign is never a sign of something good,” he said.