Big Silicon Valley backers of
cryptocurrencies have sought a broad exemption from federal oversight they say
would slow digital coin growth, as the industry steps up lobbying to limit
government oversight of the burgeoning world of cryptocurrencies.
Andreessen Horowitz and Union Square Ventures
met with officials at the Securities and Exchange Commission on March 28,
arguing that Washington oversight could slow innovation based on the blockchain
technology that underpins cryptocurrencies such as bitcoin, people familiar
with the matter said. The SEC has launched a broadside against many cryptocurrency deals,
saying virtual tokens issued by startups are investments that
should be regulated as securities, subjecting the firms to extensive federal
The industry faces an alphabet soup of regulators—from the SEC to the Commodity
Futures Trading Commission, to banking regulators who police the payment
systems and enforce anti-money-laundering laws. It has also clashed with
Washington over whether gains on bitcoin trading should be taxed.
As the government has turned up the heat, the
industry has turned to a playbook followed by other growing asset classes or
technologies. It has hired top political and legal talent to lobby and sing the
praises of voluntary standards that could stave off official regulation, while
forming trade groups and playing up blockchain as a transformative technology.
“You can’t just put your head in the sand and
wish away government oversight,” said Jason Weinstein, a partner at law firm
Steptoe & Johnson LLP who works on cryptocurrency issues.
Mr. Weinstein, a former senior Justice
Department official, serves on the advisory boards of Coin Center and the
Chamber of Digital Commerce, growing Washington-based groups that advocate for
the cryptocurrency industry and blockchain technology.
The groups also have filled their boards with
former top regulators, including former CFTC Chairman Jim Newsome, former SEC
member Paul Atkins and former CFTC Commissioner Mark Wetjen.
The late March meetings at the SEC were
attended by Andreessen, Union Square, and lawyers from Cooley LLP, Perkins Coie
LLP and McDermott Will & Emery LLP, as well as a lobbyist from the National
Venture Capital Association. Andreessen partner Scott Kupor and general counsel
Ryan Ward attended the meeting, as did Union Square’s Brad Burnham and John
Buttrick. The group met with top officials of the SEC’s Division of Corporation
Finance, which regulates initial coin offerings, and the offices of some SEC
As bitcoin has emerged from the underground
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The group wanted formal assurance from
regulators that their products would be exempt from SEC oversight, arguing the
tokens aren’t investments but products that can be exclusively used to access
services or networks provided by startup companies, people familiar with the
That would allow startups to sell tokens
broadly to investors without having to provide regulated disclosures such as
financial statements and elaborate descriptions of their business. The group
said it wouldn’t object to the SEC intervening if a token issuer committed
fraud, the people said.
SEC officials have privately expressed
skepticism about granting such a broad exemption, the people said. The SEC is
more likely to offer a limited exemption from oversight if a company’s token
sale is capped at a per-investor limit and can’t be resold at a profit to third
parties, the people said.
The cryptocurrency industry’s more established
players last December scored a victory for their legitimacy when two of the
biggest derivatives exchanges, CME Group Inc. and Cboe Global Markets , launched
bitcoin futures. By allowing the contracts to come to market, the CFTC signaled
that the bitcoin exchanges whose indexes were used to reference the contracts
had proper safeguards against fraud and manipulation.
“It was good to help institutionalize bitcoin
and have those on supervised platforms,” Mr. Atkins, the former SEC
commissioner, said April 11 at a cryptocurrency conference.
Cboe’s bitcoin futures are based on a bitcoin
index maintained by Gemini Trust Co., a virtual-currency exchange. In March,
Gemini’s founders, Cameron and Tyler Winklevoss, were the first exchange
leaders to propose a plan to create a standard-setting organization for
The Gemini proposal or something similar
could, theoretically, bridge the gap between existing CFTC and SEC jurisdiction
by providing structure and oversight to virtual-currency markets—at least those
that function like traditional currency-trading markets. The Winklevosses met
privately with CFTC Commissioner Brian Quintenz, who has urged the industry to
form a standard-setting body, to discuss the proposal.
“Policy makers would definitely like to see
the industry self-police, especially exchanges,” said Jerry Brito, executive
director of Coin Center.
But there are signs that a standards body, at
least for now, won’t come close to satisfying everybody.
“Conversations around codes of conduct are
good,” said Ryan Zagone, director of regulatory relations for Ripple, a
digital-currency and payments-system provider. “But the market is still looking
for its legs when it comes to regulation.”
Cryptocurrency firms want to limit additional
regulatory scrutiny, which could have lasting consequences for the
“You can’t just start writing laws and
regulations today and expect to get it right,” said Perianne Boring, president
of the Chamber of Digital Commerce. “It’s building on wet cement.”
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