Can crypto become a new bank? The reasons why does the cryptocurrency's decentralization isn't forever

In this article, we will discuss in detail the expiration dates of the principles underlying the Securities Acts of 1933 and 1934. Aren't they obsolete today? We will consider new examples of what exactly is relevant to the provisions of the Securities Act. In conclusion, it is time to understand why many senators and government regulators are concerned about the growing cryptocurrency market.

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Fidelity Claims The Bitcoin Exchange Has Already Reached Maturity Under The SEC's Standards

On September 8, Fidelity Investments asked the US Securities and Exchange Commission to approve its Bitcoin Exchange Trading (EFT) fund. CFOs justified their position for several reasons that should help get an investment product approved.

These are the following points:

  • increased demand for digital assets and related products;
  • the prevalence of similar funds in other countries (for example, regulators of the world developed market have approved exchange-traded bitcoin products (ETP) in Canada, Germany, Switzerland, and Sweden);
  • growth in the spread of bitcoins.

Why is this so?

Due to the maturity of the market, strict compliance with laws is not required in Fidelity's view. We are talking about the law of 1933, which allows exchanges to place products, as well as a law that only allows futures products.

The Securities Act of 1933 was passed after the 1929 stock market crash. It is approved to protect investors through the adoption of laws against misrepresentation and fraud. Fidelity believes that these laws are too strict. Also, the markets have become more transparent and well-established.
"We believe that Bitcoin futures-based products are not a necessary milestone before Bitcoin-ETP; firms must be able to meet investor demand for direct access to bitcoins [...] through the ETP because the bitcoin market is mature and can support it. "
Another controversy between the SEC and Coinbase. The topic was the crypto lending product Lend

The US Securities and Exchange Commission intends to take legal action against Coinbase. The problem lies with Coinbase's upcoming cryptocurrency lending program known as Lend.

SEC talks about the fact of placing securities without asking for registration. Coinbase executives are responding by saying that 90-year-old securities laws should not apply to cryptocurrency products that were considered unthinkable even 20 years ago. At the same time, the main principles at the heart of the Securities Acts of 1933 and 1934 were developed precisely to identify products that have not yet been invented.

Is Coinbase's product so innovative that the laws need to be repealed? Has the bitcoin market matured enough for financial companies like Fidelity to list products on exchanges?

Fitting the definition of a securities law

Under the Securities Act of 1933, "investment contracts" are considered securities. Issuers of investment contracts must register with the SEC and comply with disclosure requirements. The problem is that the term "investment contract" has a very broad meaning.

For example, in the 1946 Howie case, the Supreme Court established criteria for whether a product is an investment contract and therefore whether it should be regulated by securities.

According to the regulation, the goods must be:

  • Investment of money
  • In a common enterprise
  • With the expectation of profit
  • Be derivative of the efforts of others

The product must meet all four criteria to be considered as a security.

SEC considers the Coinbase loan product to be a security because it behaves like an "investment contract." That is, it is an investment of money (in this case, we should consider the client's cryptocurrency deposits) in a common enterprise with a reasonable expectation of profit from the efforts of others.

Coinbase denies the position that the loan is not an investment contract. Instead, the company's customers loan USDC coins in their accounts as part of their existing relationship with Coinbase. The company also said it committed itself to pay interest to its clients on the loan regardless of the success of its larger operations and business activities.

The confusion stems from a lack of transparency in the Commission's statement of plans to evaluate such products as part of the Howey and Reves Test. This is the check that determines the definition of the investment contract.

Suppose cryptocurrency lending projects come to life. Will this mean that the cryptocurrency market is a "new bank"?

Already, regulators are talking about the fact that cryptocurrency is a new shadow bank. For example, Senator Elizabeth Warren expresses this opinion openly.

She is concerned about the fast-growing stablecoin market. Their value is linked to the value of other assets, including the US dollar, euro, and gold.

Senator Warren said US banks "should consider" banning holding reserves to support private stablecoins. She argues that global financial regulators are paying more attention to stablecoins such as USDT. According to online reports, the Ontario Securities Commission recently banned USDT trading services on Canada's first two listed crypto exchanges, Wealthsimple and Coinberry. In mid-July, US Treasury Secretary Janet Yellen called on the financial authorities to put in place a proper regulatory framework for stablecoins.

Also, former SEC employee Mark Powers pointed to some complex features of the adaptation of US regulations. This applies to both centralized and decentralized exchanges, including cryptocurrency lending and staking markets.

Powers said the SEC will have to decide for crypto companies like Coinbase, which are not their broker-dealers, whether a cryptocurrency lending product qualifies as a security, even if the company's cryptocurrency catalog does not include any security tokens.


Every time someone allows someone to borrow at interest, and then lends at a higher interest rate and appropriates the difference, that means banking, whether it applies to existing banking rules or not.

Eventually, crypto lenders will be subject to special banking regulations created for them and will have their version of FDIC insurance.

At the same time, however, cryptocurrency advocates continue to warn that strict regulations will only stimulate innovation outside the United States. But sooner or later, cryptocurrency is more likely not to destroy the existing state of affairs, but to revive it digitally.