China-based mining titan Bitmain Technologies has discreetly filed an application for an Initial Public Offering with the United States Securities and Exchange Commission.
China-based mining titan Bitmain Technologies has discreetly filed an application for an Initial Public Offering (IPO) with the United States Securities and Exchange Commission (SEC).
According to an Oct. 29 report from Tencent News citing anonymous “informed sources,” German multinational Deutsche Bank is sponsoring the application. The amount sought to be raised by the offering has not been specified.
Deutsche Bank reportedly sponsoring the application
Tencent News further reports that the IPO plans have been dominated by Bitmain co-founder Jihan Wu and Chief Financial Officer Liu Luyao.
To bolster chances of success, the firm has purportedly hired Zheng Hua, former Nasdaq representative for China, as a consultant to the firm.
The SEC’s review process will reportedly entail three rounds of inquiries and last an estimated minimum of 1-2 months.
A further unnamed industry source, reportedly familiar with the SEC’s listing procedures, told Tencent:
“The SEC has no biased position toward the blockchain business, but is rather concerned about professional and technical issues.”
The source claimed that the company’s connection to the Bitcoin (BTC) fork Bitcoin Cash (BCH) is likely to be the largest obstacle facing the application.
Industry onlookers will remember Bitmain’s earlier, ill-fated attempt to file a major $3 billion IPO on the Hong Kong Stock Exchange in September 2018, which lapsed after multiple controversies this March.
This week has been another eventful week for Bitmain with Jihan Wu revealing that fellow co-founder Micree Ketuan Zhan had left the company amid signs of internal company drama.
On Oct. 28, rival Chinese mining firm Canaan Creative filed for an IPO with the U.S. SEC to raise $400 million, eyeing a listing on Nasdaq under the ticker CAN.
Earlier this month, Bitmain opened what it claims is the “world’s largest” facility for Bitcoin mining in Rockdale, Texas.
Mining rig manufacturer Canaan has filed for an IPO with the U.S. Securities and Exchange Commission to raise $400 million on the Nasdaq Global Market. Prior to this filing, the company had also attempted to go public in Hong Kong and China. Credit Suisse and Citigroup are among its underwriters.
Canaan Inc., a holding company that owns China-based Canaan Creative, filed a registration statement with the U.S. Securities and Exchange Commission (SEC) on Oct. 28 for an initial public offering (IPO). “We are offering American depositary shares, or ADSs. Each ADS represents Class A ordinary shares, par value US$0.00000005 per share,” the filing details. The company hopes to raise $400 million.
The underwriters named in the filing for the IPO are Credit Suisse, Citigroup, China Renaissance, CMBI, Galaxy Digital Advisors, Huatai Securities, and Tiger Brokers. The company plans to apply to list its ADSs on the Nasdaq Global Market under the symbol CAN. Canaan also told the SEC that, based on a report by independent research firm Frost & Sullivan which it paid for:
We were the second largest designer and manufacturer of bitcoin mining machines globally in terms of computing power sold in the six months ended June 30, 2019.
The company plans to use the proceeds to research and develop ASICs related to AI and blockchain algorithms and applications, expand its AI and blockchain business globally, optimize supply chains, and repay debts.
Canaan attempted an IPO in Hong Kong last year but let the application lapse in November. The South China Morning Post reported that Hong Kong regulators said IPOs by cryptocurrency businesses are “premature.” The company also attempted to go public in China three years ago through a reverse merger by buying a Shandong-based electric equipment maker, but that plan also fell through.
Canaan’s Nasdaq IPO filing comes only days after Chinese President Xi Jinping commented on the development of blockchain technology in China which sent shares of blockchain and digital currency-related firms soaring. Some even speculated that Xi’s speech caused the recent hike in prices of bitcoin and other cryptocurrencies.
About Canaan and Avalonminers
Founded in 2013, Canaan provides “supercomputing solutions through our proprietary high-performance computing ASICs,” its registration statement reads. The company currently sells bitcoin mining machines under the Avalonminer brand and mining machine parts. In July, the company started leasing its mining machines.
The company’s total revenue was $394.1 million in 2018, a 106.8% increase year-on-year, but its net income fell 67.4% last year to $17.8 million. For the six months period ending June 30, the total revenue fell 85.2% compared to the same period last year to $42.1 million. The company also recorded a net loss of $48.2 million during that time period.
According to the filing, since the company has less than $1.07 million in revenue for the last fiscal year, it qualifies as an “emerging growth company” pursuant to the Jumpstart Our Business Startups Act of 2012 (the JOBS Act). “An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise not applicable generally to public companies,” the filing details.
The company recently introduced two new lines of Avalonminers: the A1146 and the A1166. The former rig processes bitcoins’ hashes at speeds of 46-56TH/s, with a power efficiency rated at around 57J/T, and a price tag of $1,978. The latter costs $1,204 and performs at 66-68TH/s with a power efficiency of around 47J/T. Both are expected to ship in February, according to the company’s website.
What do you think about Canaan filing for an IPO in the U.S.? Do you think the company will successfully raise $400 million? Let us know in the comments section below.
Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Images courtesy of Shutterstock and Canaan.
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Chinese cryptocurrency mining giant Canaan Creative has filed for an initial public offering with the U.S SEC to raise $400 million.
Chinese cryptocurrency mining giant Canaan Creative has filed to be a publicly-traded company in the United States.
On Oct. 28, Canaan Creative filed for an initial public offering (IPO) with the U.S. Securities and Exchange Commission (SEC) to raise $400 million, while planning to be listed on the Nasdaq under the ticker CAN.
Canaan reportedly filed a $200 million IPO draft request with the U.S. regulators in July, but the formal F-1 form was not made public until today.
If successful, Canaan, which is one of the three major Chinese crypto mining companies alongside Bitmain and Yibang International, could become the first China-based mining firm to be publicly traded in the U.S.
Bitmain already filed to list an IPO with the U.S. SEC in June 2019, following the expiration of its IPO listing application with the Hong Kong Stock Exchange in March.
According to the SEC filing, Canaan generated $394 million in revenue in 2018, with a net income of $8.3 million. However, the designer and manufacturer of Bitcoin mining machines has experienced a total comprehensive income loss of $45.8 million in 2019.
Canaan competitor opens the “world’s largest” mining farm
Canaan’s biggest competitor Bitmain opened what it claimed to be the world’s largest facility for Bitcoin (BTC) mining in Rockdale, Texas, which was completed thanks to a collaboration with the Rockdale Municipal Development District and Canadian technology firm DMG Blockchain Solutions.
Clinton Brown, Rockdale lead project manager for Bitmain, said that the facility’s launch is “significant to Bitmain’s global expansion plans” and that the state’s stable and efficient energy resources will be fundamental to supporting what he believes is set to be the inevitable scale of growth of the mining industry.
Stablecoin operator Paxos is launching its settlement platform for U.S.-listed equity securities after receiving a no-action relief from SEC.
Paxos Trust Company announced today that it is set to introduce its Paxos Settlement Service for a number of United States-listed equity securities.
In an Oct. 28 press release, digital asset trust company Paxos stated that it is moving forward with the launch of its blockchain-based settlement platform, having received no-action relief from the U.S. Securities and Exchange Commission (SEC).
The SEC letter indicated that the agency will not take any action against Paxos, which means the company can now proceed with the roll-out of its settlement platform.
Two European banks, Credit Suisse and Société Générale, will be among the first to utilize the live application of the blockchain-enabled product for U.S. equities, where the two parties will be able to bilaterally settle securities trades directly with each other. Charles Cascarilla, CEO and co-founder of Paxos, stated:
“We’re starting with U.S. listed equities, but this technology can be scaled to many asset classes across geographies and for all types of clients.”
At the beginning of September, Paxos launched PAX Gold (PAXG), a gold-backed Ethereum token, claiming that it is “the first crypto-asset redeemable for physical gold.” A few days later, the stablecoin received a regulatory nod of approval from the New York State Department of Financial Services, with the government body referring to PAXG as the first gold-backed digital currency to become eligible for trading in the state of New York.
Kraken adds support for PAX Gold
Just today, the San Francisco-based cryptocurrency exchange Kraken announced that it is listing PAXG. The users of the exchange will be able to deposit, withdraw and trade the asset starting Oct. 29. Kraken will roll out trading pairs between PAXG and Bitcoin (BTC) and Ether (ETH), as well as with fiat currencies such as the euro and the U.S. dollar.
As TON investors reject refund opportunity, experts weigh in on how damaging the latest developments are for the future of the project.
Telegram’s ongoing saga with the U.S. Securities and Exchange Commission isn’t ending anytime soon. After the regulatory body swooped in with a last minute restraining order, Telegram has been embroiled in an increasingly strenuous legal battle to get the Telegram Online Network (TON) over the line. The blistering pace at which the latest developments have occured shows no sign of slowing, with the court hearing pushed back to February 2020 and investors voting against a refund of up to 77% of their initial investment.
Since the hammer of the SEC came down on Oct. 16, the rights of TON investors have taken center stage. While Telegram followed the SEC’s ban with a forthright legal challenge, what might happen to investors from the company’s $1.7 billion private sales round created heated discussion. A leaked copy of the sales contract signed by investors revealed a “force majeure,” a clause that indicated the firm might not be obliged to refund investors in the event of regulatory changes.
As previously reported by Cointelegraph, legal opinion was divided over what this clause could mean for investors’ funds, with some arguing that accredited investors should be able to mitigate risk prior to investment. Others indicated that Pavel and Nikolai Durov — the brothers behind Telegram and TON — may have to pay out from their own personal funds.
Investors vote on refund
Now, investors voted against the return of their funds according to two sources close to the Telegram team. Investors initially had until Oct. 23 to decide whether or not they would demand a 77% refund of their investment. Investors from both rounds of the offering voted for a postponement of the TON network until April 30, while maintaining their initial investment in the project.
Although this brazen display of confidence from investors indicates that there is still momentum behind the project, Gary Murphy of the New York-based legal practice Debevoise & Plimpton, told Cointelegraph that he sees nothing from the SEC that signals a reversal of its original view:
“At this time there is nothing from the SEC to indicate that a green light — basically reversing the initial view expressed in the injunction filing — is necessarily likely.”
Telegram’s court appearance in New York has been postponed until late February 2020, as both the firm and the SEC explore the complexities of the case and whether there is one. In a letter to investors published on Oct. 19, Telegram said that the rescheduling of recent hearings until Feb. 18–19, 2020 is a positive step toward its regulatory issues being resolved:
“Telegram views this development as a positive step towards resolving this matter through the court system in an expeditious manner, and we and our advisers will be using the time to ensure that Telegram’s position is presented and supported as strongly as possible at the February hearing.”
Telegram’s regulatory woes began after the SEC announced that it would classify the Gram token (the native currency of TON) as a security. The crux of the issue lies in the fact that Telegram filed for a “Form D” in February 2018, an exception that releases the applicant from registering their token as a security with the SEC.
Applicants that take the Form D route do not, however, have free rein to do exactly as they please. Telegram is restricted to selling Gram tokens only to accredited investors. This particular nuance of the application route proved to be the downfall for the TON launch.
Investors in the two private rounds of sales in February 2018 may well have been accredited, but no restrictions were put in place to prevent them from subsequently reselling their newly acquired tokens to investors that do not meet the same SEC requirements.
An example of this occurred in July, when South Korean custodian Gram Asia, unaffiliated to TON itself, began selling rights to its Gram holdings on Japanese cryptocurrency exchange Liquid at $4.00 per token, almost tripling the original $1.33 sale price in the private sales round.
In its letter to investors, Telegram hammered home its belief that the SEC is mistaken in its classification of Grams as securities. The firm said that it expected the postponement of the court hearing to allow for more time to argue its case for the classification of Grams:
“In the February hearing Telegram anticipates asking the court to rule on the core argument that Grams are not securities. The October 24 hearing, in contrast, was only to consider whether a delay should have been mandated, without conclusively resolving the core argument.”
Avichal Garg, entrepreneur and co-founder of Electric Capital, told Cointelegraph that the delay will give the SEC and TON time to negotiate, and that he expects an out-of-court settlement to be the most likely outcome: “The second most likely outcome is that TON launches outside of the US and returns money to its US based investors.”
As internet attorney and cybersecurity law professor Andrew Rossow told Cointelegraph, the SEC has made its position clear, and companies that don’t comply with regulations can expect to face the consequences:
“If you are in the digital money space or regularly dealing with securities, you need to get one thing straight — the SEC isn’t playing around.”
In Rossow’s opinion, the SEC has now made it clear that most tokens offered by companies qualify as securities and therefore must be in compliance with regulations. However, most companies fail to understand both what type of product they are offering as well as the effect that will come from it. He went on to add:
“It’s time these companies recognize this is not a game. You don’t mess with people’s hard-earned money or investments. I don’t care if you are Telegram or Facebook. What we are starting to see is the SEC, Congress, and other lawmakers begin to hold Silicon Valley and tech giants accountable for their actions.”
According to a court order shared with Cointelegraph on Oct. 19, Telegram’s hearing with the SEC in New York is due to take place in early 2020, on Feb. 18–19. The court order prevents the sale of any tokens until the conclusion of the hearing:
“IT IS ORDERED that Defendants shall not offer, sell, deliver, or distribute ‘Grams’ to any person or entity, until the conclusion of the hearing scheduled by the Court.”
In addition to its claim that Telegram violated U.S. securities laws during its two sales rounds, the SEC is attempting to put in place a preliminary injunction to prevent the company from committing further violations. Debevoise & Plimpton’s Murphy outlined his take on the significance of the delay to Cointelegraph:
“My sense is that the judge in the case determined that there are novel and complex issues to be resolved in the case, and that delaying the hearing would provide the parties more time to prepare. It would also ultimately give the court more time to consider the SEC’s initial filing and Telegram’s response.”
Murphy also suggested that Telegram and the SEC may be able to come to an agreement prior to the 2020 court date, adding that the court most likely chose not to rush the decision:
“Since Telegram had already determined to delay its launch of TON (based primarily on the SEC’s injunction filing according to Telegram’s letter to investors), the court may have also taken the view that rushing to conduct the hearing on October 24 is no longer warranted.”
Gregory Klumov, CEO of the euro-pegged stablecoin Stasis, said that he expects the delay to impact the crypto markets:
“It is definitely a blow to crypto industry’s ‘killer app’ fundraising. I anticipate bitcoin will outperform altcoins until there is regulatory clarity with TON.”
Despite this, Klumov explained to Cointelegraph that the TON debacle, coupled with Facebook’s Libra conundrum, will accelerate discussion about regulation in the U.S. Klumov also outlined that the 1933 securities laws are outdated and unfit to deal with the technological advancements that have transformed the sector:
“It is impossible for that regulatory framework to address technological disruption of these centrally provided services. But its is now. Governments should wake up and follow the market that demands a new set of laws to support entrepreneurship in the space and not protect existing monopolies which grew to become too big to fail a while ago, already causing harm to the economy and society multiple times.”
Who wields the power?
Regardless of when the rules were created, Rossow told Cointelegraph that there can be no misunderstanding that the legal authorities are in an undisputed position of power in the Telegram saga:
“The justice system here is in charge and in control, not Telegram or its TON blockchain project. Second, I think this is an attempt by the court to work parallel with the SEC in ensuring that in no way, can Telegram continue to allegedly violate U.S. securities law by allowing it to continue offering, selling, delivering, or distributing its ‘Grams’ to any person or entity.”
Rossow explained to Cointelegraph that the TON legal case could work out positively for future cases of crypto projects seeking regulatory approval. However, he also believes that, unfortunately for the crypto community, more cases like TON will have to be opened before regulatory clarity is reached. He explained:
“Why? Back to law school-101 — precedent. In order for case law to come about and precedent, there needs to be a history of cases, in a variety of scenarios that basically ‘tests’ the regulations (or lack thereof) in order to force courts, the SEC, and other regulatory bodies to make a ruling.”
Major cryptocurrency exchange Binance prepares to list the first-ever SEC-sanctioned Blockstack token.
Major cryptocurrency exchange Binance is preparing to expand its token offering with the listing of Blockstack (STX).
According to an announcement on Oct. 23, the cryptocurrency exchange will open trading for STX/Binance Coin (BNB), STX/Bitcoin (BTC) and STX/Tether (USDT) trading pairs on Oct. 25. Binance users can now deposit STX ahead of trading.
In addition to trading on Binance, STX will also trade on institutional exchange Hashkey Pro. In a separate press release, Blockstack notes that there are presently no authorized exchanges or tradings systems for United States-based investors to buy the token.
Blockstack’s token offering was a regulatory first
The blockchain-based startup Blockstack was the first-ever digital token offering to receive the go-ahead from the United States Securities and Exchange Commission (SEC) and run a $23 million investment round under Regulation A+.
Blockstack founders Muneeb Ali and Ryan Shea reportedly spent 10 months and approximately $2 million to get the green light from the SEC for a Reg A+ offering. Ali said that Blockstack had to develop a protocol for running what is essentially a regulated initial coin offering through Regulation A+ from the ground up.
Regulation A+ is an initial public offering alternative geared towards startups in need of early funding. Regulation A+ funding was introduced in 2012 via the “Jumpstart Our Business Startups Act.”
Blockstack partners with Lambda school to teach coding
Cointelegraph previously reported that Blockstack was partnering with the skills-based online Lambda school, where students can reportedly learn how to code Blockstack apps and earn monthly revenue through its App Mining Program.
According to Lambda CEO Austen Allred, the partnership with Blockstack “gives Lambda School students a direct path for gaining real-world development experience while earning additional income for their work.”
The U.S. Securities and Exchange Commission published the new application for a Bitcoin ETF recently submitted by asset manager Kryptoin Investment Advisors
Delaware-based asset manager Kryptoin Investment Advisors applied with the United States Securities and Exchange Commission (SEC) to launch a Bitcoin (BTC) Exchange Traded Fund (ETF) on Oct. 15.
A Bitcoin ETF on the New York Stock Exchange
According to the filing document published by the SEC, the Kryptoin Bitcoin ETF Trust is meant to be traded on the New York Stock Exchange Arca. Notably, the ETF product is designed:
“[…] To provide exposure to bitcoin at a price that is reflective of the actual bitcoin market where investors can purchase and sell Bitcoin, less the expenses of the Trust’s operations.”
The company plans to hold Bitcoin and value the shares of the trust according to the Chicago Mercantile Exchange Bitcoin Reference Rate. The cryptocurrency will be held at an unspecified third-party insured custodian that is also regulated under the Investment Advisers Act of 1940.
The SEC filing also details that the Trust will hold Bitcoin “in seeking to ensure that the price of the Trust’s shares is reflective of the actual bitcoin market.”
However, the Trust will not purchase or sell bitcoin directly but will acquire it via shares called “baskets.” The report continues:
“Instead, when it sells or redeems its Shares, it will do so in ‘in-kind’ transactions in blocks of 100,000 Shares called ‘Baskets’ at the Trust’s net asset value (‘NAV’). Only Authorized Purchasers may purchase or redeem Shares with the Trust, and they will do so by delivering bitcoin to the Trust in exchange for Shares when they purchase Shares.”
A notable executive
Another notable detail is that the head of exchange-traded product at Kryptoin is Jason Toussaint, former managing director at the World Gold Council and ex asset manager of SPDR Gold Shares, one of the largest Gold ETFs in the world.
Meanwhile, the race to launch the first regulated Bitcoin ETF is becoming increasingly competitive.
Earlier this month, documents revealed that the Wilshire Phoenix Fund has updated its own Bitcoin ETF proposal filed with the SEC. Also this month, asset manager Bitwise alongside NYSE Arca confirmed the intention to refile their application for a Bitcoin ETF after the latest SEC rejection.
U.S. Congressman Patrick McHenry, who represents North Carolina’s 10th District, says he wants regulators’ default reaction to crypto innovation to be “yes.”
U.S. Congressman Patrick McHenry, who represents North Carolina’s 10th District, says he wants regulators’ default reaction to crypto innovation to be “yes.”
The Congressman — who goes by the moniker of “Mr. Fintech” on Capitol Hill — made his remarks during an interview for Laura Shin’s Unchained podcast, published on Oct. 22.
Reintroducing the Financial Services Innovation Act
McHenry related his observations of the cryptocurrency space’s development, underscoring that the Bitcoin’s enormous value had become swiftly apparent. He soon recognized, he said, that regulators’ responses would struggle to keep pace with the wealth of new ideas:
“My conclusion was, any action by the government — really up until the last 2, 3 years — would be negative, would impair innovation and would restrict the development of cryptocurrencies and their enormous value, now and in the future.”
It’s far better, he continued, for Capitol Hill to slowly become more informed about the industry “rather than rush to go kill — or try to kill — an idea.”
As the industry has evolved, he argued that we’ve entered a different phase: one that now needs smarter regulation and increased certainty from the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC), as well as a clarification from the U.S. Treasury and IRS in regard to taxing authority.
“Real government work still needs to be done,” he noted.
To this end, he has this week reintroduced the Financial Services Innovation Act. The bill proposes the creation of financial service innovation offices within each of the ten different federal offices that deal with financial service issues.
The bill, he said, will ensure that regulators are “innovation-forward and situated to say yes rather than no. I want the default to be yes, not no.”
Working for, not against, innovation
McHenry outlined that the creation of these offices would establish something similar to what other jurisdictions call a “regulatory sandbox.” His proposed term, “permanent beta testing,” would work on the same principles.
Regulatory agencies would be able to offer innovators in the crypto space to enter into an enforcement compliance agreement: once accepted, this would allow them to provide services under a modified compliance plan, with certain waivers for out of date measures or unduly burdensome.
For agencies such as the SEC and CFTC and others, he argued that the bill represents a necessary step to establishing a regulatory process that works with, not against, innovation.
As reported, McHenry told lawmakers this summer that:
“The world that Satoshi Nakamoto, author of the Bitcoin whitepaper envisioned, and others are building, is an unstoppable force.”
Morgan Creek Capital Management firm has raised $61 million for second blockchain fund, with the ultimate goal of raising $250 million.
Anthony Pompliano’s Morgan Creek Capital Management firm established a blockchain fund to explore opportunities using distributed ledgers.
On Oct. 18, the cryptocurrency asset management firm Morgan Creek submitted a filling for its second blockchain fund to the United States Securities and Exchange Commission (SEC) and has so far raised nearly $61 million from 11 investors.
The filing — a Form D, that requests an exemption for the offering — shows that the fund started its first offering on Oct. 16 and is ongoing.
In an exclusive interview with Cointelegraph, Morgan Creek co-founder Anthony Pompliano said that the ultimate goal of the fund is to raise $250 million, with a new funding round in December of this year and a final round planned for the end of the first quarter of 2020.
Pompliano told Cointelegraph that two key investors more than doubled their investment. When asked about the names of the public pension funds that have participated, Pompliano identified them Fairfax County Police Pension and Fairfax County Employee Retirement Pensions, adding:
“We also have what we believe is the first hospital system in the United States to participate in a dedicated blockchain fund called WakeMed.”
The Bitcoin (BTC) maximalist stated that Morgan Creek will continue to use the same strategy they had in the first fund and are looking for entrepreneurs who are in the initial stage of building their companies to support them with the resources raised.
Bitcoin to $100,000 by the year 2021
Cointelegraph reported in July that Mark Yusko, founder, CEO and CIO of Morgan Creek Capital Management, stated that the crypto markets are finding themselves in the next parabolic move, adding:
“That will probably take us into the $30,000 level before we get another little correction […] the path to $100,000 by 2021 is really quite easy to draw out.”
Yusko has previously been very bullish on Bitcoin, going on record to predict a $400,000 high for the cryptocurrency at some point in the future.
Daniel Jimenez of Cointelegraph en Español contributed to this article.
Author of the Token Taxonomy Act and member of the U.S. House Financial Services Committee Rep. Davidson speaks with Cointelegraph ahead of Zuckerberg hearing.
In an interview with Cointelegraph on Friday, Oct. 18, United States Representative Warren Davidson gave his thoughts on the Securities Exchange Commission’s (SEC) flawed approach to regulating digital assets as well as Mark Zuckerberg’s upcoming Oct. 23 testimony before the House Financial Services Committee.
Congressman Davidson (R-OH) is a figure familiar to many in the crypto world for his role in authoring the Token Taxonomy Act, as well as his general optimism about the role of blockchain in the U.S.
On regulating Libra as a security
While discussing regulating cryptocurrencies at large as opposed to Libra, Davidson was highly precise in his taxonomic definitions:
“We use the term ‘cryptocurrencies’ to refer to everything in the crypto space, which is sloppy language. What we need to focus on is, what is Libra’s goal? Its goal is to be a currency. Let’s not conflate that with what other things in the space want to do and how we regulate them. How we look at Libra would be to apply, in my view, the Token Taxonomy litmus test.”
Davidson concluded that Libra is ultimately classified as a security, and therefore falls under the purview of the SEC within the United States. He explained this as being a function of the influence of a central organization over Libra’s composition. It was originally planned as a “basket” of currencies, though David Marcus, head of Calibra, yesterday suggested that these could instead be fiat-pegged stablecoins.
Speaking about Libra’s classification as a security, Davidson said, “It has nothing to do with stablecoins. It has to do with whether there’s a central authority that can alter it.” The congressman was unconvinced that the planned basket of currencies would be fixed and stable, opening Libra up to the Libra Association’s tampering. He ceded that SEC Chairman Clayton is correct in his assessment as to how this makes Libra a security, rather than a true currency.
“It’s the ability to destroy your value,” Davidson said. “And in that sense, when you’re placing all your faith in the value of that token on the actions of a central authority, that’s where I tend to agree with Jay Clayton. That looks a lot like a security.”
Elaborating on Libra’s centralization, Davidson said, “The way that they proposed to do it — and the fact that it’s Facebook doing it — highlights to me the problem with centralized tokens.” Bitcoin (BTC) came up as a comparison: “Whoever Satoshi Nakamoto is, you can’t serve Satoshi papers. There’s no headquarters to subpoena.”
Davidson did credit Facebook’s initial whitepaper for Libra with a rapid expansion of interest in crypto:
“It was the moment that I think a lot people said, ‘Wow this is really gonna be a thing, it’s not just this wonky niche.’ Facebook’s talking about doing it all over the planet, this is going to scale up. It really raised the profile of blockchain. I think that’s great.”
On the SEC’s “third-world” approach to crypto: regulation by enforcement
Despite his desire to see Libra under the SEC’s jurisdiction, Davidson was extremely critical of the commission’s current regulation of digital assets. The present strategy has largely consisted of legal action against companies making moves that the SEC deems missteps:
“The SEC is doing a complete patchwork of regulation. No one knows where they’re going. They’re literally told if you want to launch a token, whatever you think you want to do with it, come check with the SEC first. […] And you can grovel. If you grovel well enough, then we’ll give you a no-action letter. You have hundreds of companies waiting on no-action letters. They’ve approved two. You can’t raise capital while you’re waiting for that.”
Telegram recently made a similar argument in response to the SEC’s emergency action against the company’s distribution of Gram tokens on Oct. 11. Telegram alleged that the commission had ended up facing an “emergency of its own making” by not doing anything in the 18 preceding months during which it was aware of Telegram’s plans.
Davidson blamed this strategy for a flight of capital from the U.S. to other countries. In the case of the Libra Association, that money’s going to Geneva. This move drew the ire of Davidson’s fellow committee members when David Marcus spoke to them in July. To Davidson, this is a search for clarity rather than anarchy:
“So what are people doing? They’re like,’Screw you guys, we’re just gonna launch it in Switzerland, Singapore, Malta — wherever.’ And they’re not going to avoid our laws — we don’t have a law. As I told Chairman Clayton, you’ve got all the charm and inefficiency of third-world power structures. Go see el jefe and maybe you can cut your own deal. That’s a horrible way to regulate the economy. You do not regulate by enforcement. You regulate by passing a simple law as a uniform standard for everyone. That’s easy to comply with. That’s what first-world countries do.”
After the SEC hearing, Cointelegraph asked whether the next steps were in the hands of legislators in Congress or regulators like the SEC. Congressman Davidson came down on the side of legislation first.
The congressman attributed the current hold-up to the mechanics of how the SEC’s commissioners operate: “They’re having a debate internal to the board as to how to go forward. And frankly, part of the holdback is Chairman Clayton. He’s got a lot of power and he doesn’t want to give it up.”
It remains to be seen how recent events will or won’t compel other members of Congress to back the Token Taxonomy Act (or any equivalent piece of legislation). On a more optimistic note, Davidson expressed continuing hope for the future of blockchain and crypto in the United States: “I believe that this is a great industry. America should be leading the world in it, we should set our framework for it.”
On his hopes for the Oct. 23 committee hearing with Mark Zuckerberg
With Davidson’s views on Libra’s status as a security established, he elaborated on what he wants to see at Wednesday’s hearing. He seemed to prefer that the hearings stick to the subject of Libra rather than reining in the company as a whole: “Hopefully it focuses on blockchain and this tokenized idea that they have versus just Facebook.”
A major concern for Davidson is the degree of control that Libra and the associated Calibra wallet will have over transactions. In his words: “Some people want the wallets to filter transactions. I don’t know. I’ve got a wallet. Does your wallet filter transactions? Does your wallet say, ‘No, you can’t buy that?’” He continued:
“Would Libra itself — which is supposed to be a store of value, money, a currency, a synthetic currency, basically — would the association have any way to filter transactions? And if they do, then it’s not really money, it’s a system of control.”
In no uncertain terms, the congressman asserted his opposition to that kind of control of consumer finances: “It’s a civil liberties thing. If you’re going to defend freedom, you have to defend money.”