In December of 2021, the House Financial Services Committee held a hearing on digital assets with several crypto executives on how to best regulate the industry. During the hearing, some members of Congress inquired whether there was a need to introduce legislation to provide more definitional clarity with respect to digital assets.
In the absence of such legislation, on the 14th of April 2023, the Securities & Exchange Commission reopened a rule proposal seeking to amend the definition of an “exchange” under the Securities Exchange Act of 1934. This proposed regulation would expand the reach of the agency to include many digital asset markets in the crypto industry, which would be forced to register with the SEC as national exchanges or as alternative trading systems with a separate set of disclosure obligations.
In the meantime, the SEC’s enforcement division planned to file suits against Binance and Coinbase, with others against Bittrex and Ripple pending. A week later, on the 20th of April, the EU Parliament voted in favor of the Markets in Crypto-Assets Regulation, which forms a comprehensive regulatory framework for digital asset markets.
The working paper begins with an explanation of the interplay between rulemaking, guidance and adjudication, which are the tools of an agency to which Congress has delegated authority to regulate an industry. The research then lays out the current state of the digital asset markets and explores two approaches to solve the problem: SEC’s regulation by enforcement and the EU’s regime under MiCA. The working paper concludes with an overall assessment of their effectiveness and proposes another way forward.