The Digital Chamber (TDC) has criticized the Securities and Exchange Commission (SEC) for allegedly imposing "merit-based" rather than "disclosure-based" standards over the past decade, which it claims has hindered investment and innovation in the digital asset industry. TDC shared these findings in a report dated February 13.
According to TDC, the SEC's actions concerning digital assets, particularly bitcoin, indicate that the agency has engaged in "merit regulation" by making subjective judgments about the merits of these investments. The report states that this approach deviates from the disclosure-based regulatory regime that characterizes U.S. securities law. TDC asserts that the SEC's Division of Investment Management has taken steps to prevent registered investment companies from offering significant exposure to bitcoin and other digital assets, imposing standards without a basis in rule, statute, or law.
In 2015, when ARK Investment Management sought to increase its exposure to bitcoin through Grayscale's Bitcoin Investment Trust (GBTC), TDC reports that the SEC allegedly verbally prohibited them from increasing their exposure beyond 10%, despite no legal or regulatory basis for such a limit. Additionally, the SEC restricted other issuers from investing in Canadian Bitcoin ETFs, initially imposing an outright prohibition before allowing a maximum 1% exposure. The SEC's staff also delayed and restricted mutual funds and ETFs from adding CME-listed bitcoin futures to their portfolios. These actions, according to TDC's report, lacked legal justification and were based on the SEC's judgment about the merits of bitcoin investments.
TDC argues that the SEC's behavior conflicts with the principles underlying the U.S. federal securities regime, which was designed as a disclosure-based system. The organization claims that these actions have harmed investors by limiting their access to potential investment gains as bitcoin's value increased significantly. TDC urges the SEC to learn from its experience with digital assets and resist merit regulation in favor of ensuring complete and truthful disclosure so investors can make informed decisions.
Under Chair Gary Gensler during a previous administration, AP News reported that the SEC filed lawsuits against several crypto companies, including Binance and Coinbase. These lawsuits alleged that those companies were operating unlicensed securities exchanges. Industry participants claim Gensler and the SEC unfairly targeted digital asset firms. Recently, Acting SEC Chair Mark Uyeda said that a new crypto-focused task force might "impact and facilitate the potential resolution" of an ongoing lawsuit against Binance.
According to its website, TDC collaborates with regulators, policymakers, and industry participants to promote an environment conducive to innovation for digital assets and blockchain-based technologies.
