Crypto coins
iStockphoto

The U.S. Securities and Exchange Commission (SEC) seemingly took another step back from crypto regulation on Thursday, declaring that crypto mining activities likely don’t fall under traditional securities law — however, according to one critic, the guidance means less than it seems.

Earlier this year, the SEC declared that so-called “meme coins” don’t qualify as securities. Now, the regulator’s corporate finance division has issued a statement setting out its belief that “protocol mining” doesn’t involve securities — and, as a result, crypto miners don’t need to register their transactions, or claim an exemption, in connection with these activities.

In a statement, the SEC’s division of corporation finance set out its views on crypto mining activity, “as part of an effort to provide greater clarity on the application of the federal securities laws to crypto assets.”

However, the new guidance was criticized by SEC commissioner Caroline Crenshaw (the regulator’s sole Democratic member), who issued a statement saying that the memo’s logic was flawed, and doesn’t do much to clarify the regulator’s position.

In her statement, Crenshaw suggested that the new guidance relies on circular reasoning, by assuming that crypto is mined only to generate rewards in the form of cryptoassets, and not to profit from the efforts of others — which means that the activity doesn’t fall under the traditional definition of a security.

“If you start with an assumption that mining is not undertaken with the expectation of profits based on the efforts of others, you will necessarily conclude that it does not involve such an expectation and is therefore not a security,” Crenshaw noted.

Additionally, she said that the guidance concedes that determining whether a specific crypto mining arrangement qualifies as a security requires it to be subjected to the traditional test for defining securities.  

“In short, the statement leaves us exactly where we started,” she said — adding that the SEC’s recent guidance on meme coins face the same limitation, and that determining whether a specific meme coin qualifies as a security still requires it to face the traditional test for defining what counts as a security.

“For the sake of investors, other market participants, and the markets themselves, I hope that readers do not mistake [the new guidance] for something more than it is,” Crenshaw said.

“I hope that the statement on crypto mining is more accurately understood for what it is and is not. Beware of any headlines that herald a wholesale exemption for mining. And mine the fine print,” she said.

Additionally, Crenshaw criticized the regulator’s approach to policymaking through guidance, instead of the conventional rulemaking process.

“Rather than engaging in an open and transparent process that benefits from the input of market participants, these supposedly ‘clarifying’ statements deliver neither progress nor clarity,” she said.