Regulatory resistance and legal proceedings conducted by the U.S. Securities and Exchange Commission (S.E.C.) are currently hindering the realization of one of the greatest promises of blockchain technology – the transfer of cryptographic currencies and assets between users without an intermediary.
A mere four months after Facebook announced its intent to launch it cryptographic currency – the Libra – came the announcement about the withdrawal of PayPal, Visa, Mastercard and other partners from the project. The Libra currency was designed to be a stable coin, backed by a variety of currencies. It would maintain a fixed value that would enable access to financial services without financial intermediaries.
The timing of these giant companies’ departures are not coincidental. The Libra Council, comprised of many major players in the financial and technological worlds, was expected to convene during the month of October in order to sign an official treaty. That treaty was supposed to regulate the companies’ obligations in the Libra project. The companies that decided to withdraw from the project before the launch date, reasoned that their decision was based upon the increased resistance to the project by central banks and regulators in Europe and the United States.
Their concern gained more validity in light of another move by the S.E.C. On October 11, 2019, at the S.E.C.’s request, a federal court temporarily enjoined the launch of the Gram currency that was to be issued by the popular messaging app Telegram, because of the S.E.C’s allegation that it was a security that was to be sold to American investors in violation of securities laws. This surprising step was taken before the currency was to be launched at the end of October, and after the funds for the project had already been raised in early 2018. This action by the S.E.C. was in addition to another federal suit it brought against the app Kik based upon similar claims.
In addition, the three major financial United States regulatory bodies – the S.E.C., the Commodity Futures Trading Commission (the C.F.T.C.), and the Financial Crimes Enforcement Network (the FinCEN) – made a joint announcement on behalf of the heads of these agencies, reminding the different players in the cryptographic currency industry that they must comply with American banking and securities laws, according to the nature of the “service” or “product” offered by them in the United States, regardless of the description of the service. This warning, coupled with the steps described above, was designed to clarify to different players in the industry that the regulators set the rules of the game.