There’s a new regulator in the United States’ cryptocurrency scene. Labeled “crypto czar” by her friends and enemies alike, Valerie A. Szczepanik is stepping into a new position at the Securities and Exchange Commission (SEC). Her role is titled Associate Director of the Division of Corporation Finance and Senior Advisor for Digital Assets and Innovation.
She’ll be tasked with keeping digital assets under control. Whether she will encourage or stamp out entrepreneurship in the new booming markets is still undetermined.
A Brief History
Szczepanik has a B.S. in engineering from the University of Pennsylvania. This was a key component in her early legal career as a patent attorney. Her law degree comes from Georgetown University.
She oversaw numerous patents in the late 80s. Some of the products are still in use today, such as the electronic poker games found for sale at stores along highways.
After her work at the patent offices, federal employers noticed her precision and excellent record. She was made a clerk for the district and appellate courts of Washington DC where she operated side-by-side with some of the most respected judges in the country.
Later in her career, Szczepanik moved north to serve as Special Assistant United States Attorney in New York’s eastern district.
In 1997, she joined the SEC as a trial counsel. Her engineering degree was and is a supreme help in dealing with all things fintech.
By 2013 she headed the SEC’s working group on Distributed Ledger Technology, which is tasked with protecting blockchain users and investors from fraud. Her latest appointment was as assistant director of the Cyber Unit in the Division of Enforcement. The working groups dealing with both fintech and the dark web were combined into that cyber unit.
Szczepanik is now appointed as the SEC’s associate director of the Division of Corporation Finance. She also advises on digital assets and innovation. She has free reign across the SEC when it comes to digital assets and related technologies. Her appointment comes in the wake of recent findings showing that certain cryptocurrencies are securities. This means some digital tokens fall under the regulations of the SEC and have to be registered.
It must be remembered that the U.S. government’s “crypto czar” is only a single person. Her powers stretch across the SEC yet the task at hand is great.
SEC Regulations on ICOs
Initial Coin Offerings (ICOs) are digital tokens produced at the birth of a new cryptocurrency which can be bought with real tender or other cryptocurrencies, sometimes with the promise of a large return for early investors.
ICOs are most often used to raise money for small tech startups. When a company makes the promise of a large return, their offering is highly likely to be a security and thus subject to SEC regulation. The SEC still goes through each new crypto coin on a case-by-case basis to determine each coin’s status, and the SEC reserves the right to claim certain coins under their regulation even if such a coin’s use is questionable. The point being that when a company makes the claim that an ICO will produce greater returns after the initial investment, that coin will almost always be considered a security.
The test used to come to these conclusions is called the Howey Test. To test if something is an investment contract (which is a security) or not, one of these criteria must be met:
- There is an expectation of profits from the investment.
- The investment of money is in a common enterprise.
- Any profit comes from the efforts of a promoter or third party.
Note that if an investment opportunity is open to many people, the public in general, and if investors have little to no control of investment assets, then that investment is likely a security.
Fear Is the Mind Killer
Some percentage of cryptocurrency users and investors think regulations harm profitability in new markets. In the short term, this is true. Yet, as the rules are made more clear as time goes on, a more stable market means more investor confidence long term. Stability is attractive and better able to withstand unforeseen consequences that may crop up as the new technology breaks out of its adolescence and into adulthood. As bigger names get more involved with cryptocurrency and popularity continues its upward growth, the more long-term investors will see benefits and fewer scams will be practiced.
Steve Bannon, co-founder of Breitbart News and former chief strategist for the Trump administration, recently showed interest in committing to cryptocurrency. He had said that it was a way to be free of international banks and the global monetary systems in general.
Look Before You Leap
That said, making informed decisions is the best course of action when it comes to most financial decisions. For every legitimate startup company that works for long-term positive growth, there are at least two paper tigers seeking out easy prey.
Look through a company’s white papers and any history on the founders before diving into the investment game. The SEC can only do so much to keep people safe from scammers.