The crypto industry is one of the most exciting drivers of financial and technological innovation taking place today. That innovation includes many different types of crypto assets, which are regulated through a wide variety of state and federal regulations. But something is noticeably missing from this wave of fintech innovation. Right now, there is no meaningful crypto securities market in the United States.
Why have crypto innovators in the U.S. steered clear of a market that has a more than $100 trillion market cap? Because there is no workable regulation for crypto securities.
Well-crafted regulation is an essential part of any healthy market. Such regulation protects investors, which increases confidence in the markets and inspires future investment. But such inspiration has not happened with crypto securities. That’s because under existing rules, there is simply no clear path for crypto exchanges to list, offer, or trade assets that are securities. In fact, existing Securities and Exchange Commission (SEC) rules impose requirements that make the benefits of crypto—like the ability to settle trades in seconds instead of days—impossible.
This is a huge missed opportunity. Crypto technology solves many of the problems that investor protection rules were designed to address by making transactions cheaper, easier, and more reliable. Securities rules that leverage crypto’s innovation, while also protecting investors and market quality, could unleash enormous potential for investors, entrepreneurs, and the economy as a whole.
The SEC needs to join the rest of the world—and other parts of the federal government—in rethinking its rulebook for digital assets. That’s why we’ve submitted a petition for rulemaking, asking the SEC to develop rules that work for crypto securities while maintaining the high standards for investor protection and market integrity that have made the U.S. a world leader.
Many thoughtful policymakers, including SEC commissioners and members of Congress, agree the current rules don’t work. The problem? So far, the SEC has done nothing to change those rules. Instead, crypto participants are told to just “come in and register” with the SEC. But that’s not possible. Existing rules don’t provide custody solutions for on-chain assets, real-time settlement options between counterparties, relevant disclosures for investors, or accommodation for 24/7 trading—all the things that make crypto unique. And that’s why market participants have avoided issuing and trading crypto securities, while the crypto commodity markets have grown.
Meanwhile, other governments are stepping in to fill the void.
We’ve recently seen a wave of activity from foreign governments trying to understand crypto and regulate it in a way that keeps investors safe without stifling innovation. Last month, for example, the EU reached a landmark agreement on the Markets in Crypto Assets (MiCA) regulation to create the most comprehensive crypto regulatory framework globally and put in place a single set of rules across the world’s largest economy.
Governments in Australia, Brazil, Switzerland, and Dubai have issued consultations seeking public input on the best way to regulate crypto. The U.K. government has set out its ambition to create a global hub for crypto assets and will consult on a comprehensive regulatory framework later this year. In the U.S., the White House is also in favor of a better path forward for crypto regulation, as evidenced by President Biden’s recent executive order seeking input from relevant federal regulators on the best approach to crypto.
If U.S. capital markets regulations fail to accommodate the next generation of securities markets innovation, overseas markets will move even further ahead. That would force the U.S. to be a follower.
We are standing by to help protect investors, create a level playing field, and keep America at the forefront of innovation for decades to come. We look forward to engaging with the SEC, the broader crypto industry, and the public to get this right.
Faryar Shirzad is Coinbase’s chief policy officer.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not reflect the opinions and beliefs of Fortune.
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