Statement on Regulation Crypto Assets: Fit-for-purpose Exemptions for Crypto Market Innovation

Today, the Commission continues its work to restore American leadership in capital formation by developing tailored, fit-for-purpose rules that are designed to support innovation in crypto asset markets.

Given the progress made in Congress to date on market structure legislation, let me be clear up front: legislation remains indispensable to enacting "future-proofed" rules of the road that are durable enough to protect the work we are undertaking today from being unwound by a future rogue regulator. The SEC has and will continue to support Congress in delivering the CLARITY Act to President Trump's desk.

Crypto asset markets have exploded since the advent of Bitcoin in 2008, yet the Commission until now has not taken meaningful steps to adapt its rules for this novel asset class. In fact, in the past, it actively undermined capital formation with regard to this asset class in the form of regulation by enforcement and disingenuous offers to "come in and register." As a result, issuers that raise capital by selling non-security crypto assets that are subject to an investment contract have had to conform to existing SEC rules, which were not adopted with these assets in mind, and many of which originated in the 1930s.

This "square peg in a round hole" approach has caused unnecessary complications and, in turn, has impeded capital formation and innovation in the crypto asset markets. In comparison, our international counterparts have been more nimble and have accommodated these new technological innovations, of course without the benefits to American investors or American legal and investor-protection standards. Thus, it has driven investment offshore, limiting the type of protections that we can provide investors here, and sometimes resulting in investors watching their money completely disappear. Moreover, this approach has resulted in significantly lower American participation and domestic investment.

Today, we are charting a new course with a package of exemptions that would facilitate capital formation and allow crypto asset innovation to flourish in the United States in the years ahead. We are charting a road to invite innovators back to the United States.

Today's proposal would create a fit-for-purpose framework-consistent with the Commission's recent interpretation1-for non-security crypto assets that are subject to an investment contract. Specifically, the proposed rules include tailored offering exemptions, as well as a safe harbor that would provide clarity for issuers, investors and other market participants as to when the related investment contract ceases to exist. Of course, the proposed rules include certain conditions that preserve core investor protections.

The proposed rules include two offering exemptions tailored for innovations in the crypto asset markets: a "startup exemption," which would allow for offerings up to $5 million during a four-year period, and a "fundraising exemption" allowing for offerings of up to $75 million each year.

Each proposed exemption includes principles-based disclosure requirements tailored to the unique aspects of crypto assets. The proposed fundraising exemption also requires disclosures regarding an issuer's financial condition, including financial statements that must be audited at certain capital raising thresholds.

Additionally, the proposed rules include an "investment contract safe harbor." Under this safe harbor, if the issuer certifies to the Commission that it has ceased or terminated all essential managerial efforts that it promised to undertake under the investment contract and satisfies certain other conditions, then the Commission would no longer deem the non-security crypto asset to be subject to an investment contract and, therefore, no longer subject to the authority of the Commission.

This is common-sense regulation: minimum effective dose, maximum freedom to build, and durable clarity under existing law. It will keep investor protection central while ensuring American markets, not foreign jurisdictions, write the next chapter of financial innovation.

Lastly, I would like to recognize Commissioner Peirce for her years of principled leadership on these issues. She has long championed the concepts of this proposal through her safe harbor proposal, and today's action is a fulfillment of her original idea.2 Commissioner Peirce's steadfast commitment to thoughtful, innovation-forward policymaking laid much of the groundwork for Regulation Crypto Assets, and the Commission's progress would not have been possible without her persistence and vision.

Thank you to the following members of the Commission staff for their work on this proposal.

Division of Corporation Finance
Jim Moloney, Sebastian Gomez Abero, Christina Thomas, Luna Bloom, Valian Afshar, Andy Schoeffler, Patrick Faller, John Fieldsend, Irene Paik, Nolan McWilliams, Isabel Rivera, Heather Rosenberger, Melissa Raminpour, Todd Hardiman, Sharon Blume, Jeb Byrne, Kenisha Nicholson, Max Corey, Michael Coco, Michael Seaman, Adam Turk, Jonathan Ingram, Todd Canali, Anna Abramson, Jessica Ansart, and Doris Gama

Division of Economic and Risk Analysis
Joshua T. White, Oliver Richard, Lauren Moore, Charles Woodworth, Lyndon Orton, Timothy Dodd, Jill Henderson, Vladimir Ivanov, Caroline Schulte, Donald Edmond, Julie Marlowe, Navin Jayaram, Paul Yin, Evan Avila, and Michael Pessin

Crypto Task Force
Richard Gabbert, Taylor Lindman, Taylor Asher, Sumeera Younis, Landon Zinda, Robert Teply, Mark Sater, Laura Powell, Rachel Li, Phil Raimondi, and Ileana Ciobanu

Office of General Counsel
J. Russell McGranahan, Bryant Morris, Dorothy McCuaig, Evan Jacobson, Ken Alcé, David Lisitza, Ezekiel Hill, and Rebecca Orban

Office of Chief Accountant
Kurt Hohl, Shaz Niazi, Michal Dusza, Sheri York, Gaurav Hiranandani, Greg Hillson, Barry Kanczuker, Fariba Nasary, and Megha Dsa

EDGAR Business Office
Jed Hickman, Rosemary Filou, and Laurita Finch

Division of Investment Management
Brian Daly, Sarah ten Siethoff, Brian Johnson, Zeena Abdul-Rahman, Bradley Gude, Robert Holowka, and Taylor Evenson

Division of Trading & Markets:
Jamie Selway, Tyler Raimo, and Megan Mitchell