The SEC’s Kik Crypto Case Shows Just How Far Crypto Has To Go—Data Sheet
The Securities and Exchange Commission is pursuing a complaint against Kik Interactive for selling cryptocurrency as an unregistered security. Chip Somodevilla Getty Images We’re big on “wars” these days. There’s a trade war on with China, which some think is a new kind of cold war. The culture wars […]
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We’re big on “wars” these days. There’s a trade war on with China, which some think is a new kind of cold war. The culture wars over perennially hot-button topics like abortion rights are heating up. And at the intersection of finance, technology, and securities law there’s a “war on crypto.”
“Crypto,” for the uninitiated, refers to cryptocurrencies. The prefix generally means “secretive,” referring to the fact that this new creation is connected neither to a government (like real currency) or physical assets (like something with intrinsic value). It’s also short for “encryption,” as the new virtual currencies depend on some of the same mathematical wizardry behind digital encoding techniques. Bitcoin, whose dollar-denominated value has seesawed over the years, is the most famous cryptocurrency. And there are many others.
The war in question is over the Securities and Exchange Commission’s contention that cryptocurrencies ought to be regulated like securities when they are offered in bulk sales through something called an initial coin offering. A failing-at-the-time Canadian messaging company called Kik raised $100 million this way in 2017 from U.S. investors. Tuesday, the SEC sued Kik, saying it should have registered its offering so that investors could be better informed on what they were getting themselves into. Kik disputes the charges.
But many proponents of cryptocurrencies have an attitude that’s analogous to supporters of a certain maverick politician: Not hewing to the old rules is good because, you know, the old rules suck. Regulators, which do boring things like protect investors from unscrupulous operators as well as themselves, are old-fashioned. (Jeff Roberts recently detailed the besieged mentality of the “crypto” community, which in its short existence has been shown to have more than its fair share of unscrupulous operators.)
There are serious people on both sides of this debate. Former prosecutor Katie Haun, for example, has gone from chasing down shady cryptocurrency characters to defending—and investing in—this burgeoning field. As Robert Hackett detailed in his September profile, Haun is with venture-capital firm Andreessen Horowitz now. She recently dissected the battle in a long blog post. (I’ll be interviewing her at the upcoming Brainstorm Finance conference in Montauk, N.Y.)
Cryptocurrencies may well have their place in the economy one day. But first they’ll have to prove that they are safe and in compliance with important regulations. As Steven Peikin, co-director of the SEC’s division of enforcement said in a statement announcing the Kik case: “Companies do not face a binary choice between innovation and compliance with the federal securities law.”