23 July 2018

Silicon Valley Is Into Bitcoin. Wants To Keep Washington Out.

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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 oversight.

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 commissioners.

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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 meeting said.

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 virtual-currency exchanges.

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 still-nascent industry.

“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.”

Click here for the original article from The Wall Street Journal.
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