The hearing was billed as an ‘Oversight of the SEC’s Division of Corporation Finance’. William Hinman, the director of the SEC’s Division of Corporation Finance, said of the virtual currencies, digital assets and ICO sphere: it ‘continues to evolve’.
He said: “We are striving for a balanced approach, and one that ensures capital formation while maintaining a strong focus on investor protection.”
IPOs in decline
One purpose of the hearing was to discuss possible reasons for the declining number of Initial Public Offerings (IPO) in the country.
Committee member Bill Huizenga asked Hinman if ICOs could be a solution to this decline, and whether all ICOs must be regulated.
Some argue that many companies are launching ICOs rather than IPOs to avoid registering with the SEC.
Hinman said, in response: “In theory, there is a time when a coin may achieve a decentralized utility in the marketplace, or [...] there may be coins where that lack of a central actor may make it difficult to regulate.”
Hinman’s remarks echoed those made by SEC chairman Jay Clayton a couple of months back. Clayton said: “Every ICO I’ve seen is a security.”
In Hinman’s opinion, the SEC should be liaising with entities releasing tokens to determine whether the offerings were regulated or do not qualified as securities.
“It takes money out of the real economy...”
Committee member Brad Sherman (D-CA) disagreed with the notion that ICOs could one day replace IPOs altogether. He claimed that an IPO ‘provides jobs in the real economy’ whereas ICOs do ‘the opposite’.
“It takes money out of the real economy, it takes people willing to invest and risk, and says ‘don’t use that ability to risk, don’t use those animal spirits to help create a job for a person who needs one, let alone build a factory for thousands, sit there and trade back and forth in the ICO.’”
Sherman then asked why ICOs haven’t been “stopped,” noting that the “balance” mentioned by Hinman will negatively affect the economy:
“When you strike a balance between those who are trying to create a new currency to facilitate drugs, tax evasion, to deprive the Fed of its ability to market our securities and return 100 bln dollars or so to the US treasury, all the balances are for total investor protection, which could be achieved by totally banning.”
Sherman said re the decentralized nature of ICOs:
“Charlatans and scammers have always favoured decentralized new enterprises.”
There ‘is a lot of ignorance about how special this area is’
Committee member Tom Emmer (R-MN) took a different stance on the subject. He highlighted the fact that there ‘is a lot of ignorance about how special this area is’.
He added: “The typical attitude too that I get from so many elected officials is that have no idea what they are talking about [...] everyone who is participating in [an area they don’t know] is either bad or dishonest, and an official must rush in and help people.”
The SEC and the Commodity Futures Trading Commission (CFTC) held a cryptocurrency hearing in February. They concluded that ICOs need the most scrutiny, digital ledger technologies (DLT) like blockchains the least, with virtual currencies like Bitcoin (BTC) somewhere in the middle.