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The Questions Around Prometheum ' s SEC-Compliant Strategy
By Keith Blackman ( January 30 , 2024 , 10:09 AM EST )
Regulatory uncertainty remains a major hurdle in the way of widespread adoption of cryptocurrency . While the U . S . Securities and Exchange Commission has sought to apply traditional securities concepts to the crypto marketplace , the cryptocurrency industry is pushing for specific regulations governing the trading of digital assets . It ' s the industry ' s apparent hope that , with clear-cut rules , it can define its products and services outside the regulator ' s purview .
But a previously obscure player called Prometheum has uniquely positioned itself as the SEC ' s darling , building a trading platform and broker-dealer based on regulatory compliance . Prometheum is already the first crypto company approved by the SEC to be a " qualified custodian " for digital assets , and it expects to open up shop in the coming months .
Keith Blackman
Did Prometheum discover the key to unlocking the mainstream implementation of digital assets , or — as the rest of the industry suspects — will its attempts at compliance ultimately prove unworkable ?
The Key Question : Is Cryptocurrency a Security ?
Of all the questions facing cryptocurrency , the most important one from a regulatory perspective is whether cryptocurrencies are properly classified as securities . If they are , the SEC can regulate them like stocks or bonds , and require disclosure-laden registration by issuers , brokers and exchanges . If not , cryptocurrency would fall outside the jurisdiction of the SEC , like fiat currencies and commodities .
The SEC , however , has declined to promulgate rules that would categorize digital assets as securities or nonsecurities . Believing that existing laws are sufficient , the commission has instead sought to establish judicial precedent by bringing enforcement actions against some of the biggest players in the industry .
In court , the SEC has urged judges to assess digital assets using the Howey test — an analysis for determining whether transactions are investment contracts , derived from the U . S . Supreme Court ' s 1946 case , SEC v . W . J . Howey Co ., involving investments in Florida orange groves . Applying the Howey test , the commission claims that virtually all cryptocurrencies , apart from bitcoin , constitute securities .
While the SEC ' s enforcement-first policy provides it with flexibility , the downsides have become apparent as courts have not uniformly sided with the regulator .