The US Securities and Exchange Commission (SEC) has delayed defining the term “digital assets” in rules governing reporting disclosures for hedge and private equity funds. The agency originally proposed including the term in amendments to Form PF in August 2022, but now says it is still considering the definition. The SEC’s proposed definition was an asset “that is issued and/or transferred using distributed ledger or blockchain technology”. The agency had argued that the inclusion of a separate category for digital assets would provide a more accurate reflection of fund exposures to the market.
However, the latest updates to the SEC’s Form PF rules require SEC-registered funds to report key events indicating systemic risk or investor harm, as well as disclosing details of fees and expenses. The changes are part of the regulator’s attempt to increase transparency in the multi-trillion dollar sector. While the SEC has been hesitant to define digital assets, it has announced plans to revisit its definition of an “exchange” to include decentralized finance.
The delay in defining digital assets could be due to ongoing regulatory debates around cryptocurrencies and the difficulty in accurately defining and classifying them. The lack of a clear definition may create further confusion and uncertainty for investors and market participants. Moreover, the SEC has not provided any explanation for the delay or a timeline for when a definition might be released.
Critics of the SEC’s approach to regulating digital assets argue that the agency is attempting to apply traditional securities regulations to a fundamentally different asset class. They argue that this approach will stifle innovation and development in the crypto market. In response, SEC chair Gary Gensler has argued that most crypto tokens have characteristics of securities and that the US crypto sector is failing to comply with securities laws.
Gensler has been vocal about his views on crypto and the need for regulation. He has previously stated that while Bitcoin is a commodity, the majority of crypto tokens have characteristics of securities and that a large number of them are likely to fail. Gensler has also been criticized for trying to regulate the crypto market primarily through enforcement.
While the delay of the SEC in defining digital assets and the constant postponement by the US government to establish a regulatory framework for crypto may be frustrating for market participants, it is also an indication of the complexity of the regulatory landscape for digital assets. The lack of clear definitions and regulations creates uncertainty for investors and businesses operating in the sector. In the absence of clear rules, many are calling for a more proactive approach to regulation that takes into account the unique characteristics of digital assets.