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On Thursday, November 24th, the Belgian Financial Services and Markets Authority (FSMA) published a document regarding digital assets. The “classification of crypto-assets as securities, investment instruments or financial instruments” strives to provide answers to the most common question on the status of cryptocurrencies.
FSMA Explains Why Bitcoin and Ethereum Aren’t Securities
As explained in the press release, FSMA’s document is primarily concerned with providing a general overview of how crypto-assets may be affected by existing financial regulations. The explanation was assembled to address “more and more questions about the application of financial rules to crypto-assets” the regulator has been receiving.
The document makes a clear distinction between assets with an issuer and those without one. It names Bitcoin and Ethereum as cryptocurrencies without an issuer and explains that such assets can’t be considered financial instruments or securities under the Prospectus Regulation, the Prospectus Law, or the MiFID rules.
If there is no issuer, as in cases where instruments are created by a computer code and this is not done in execution of an agreement between issuer and investor (for example, Bitcoin or Ether), then in principle the Prospectus Regulation, the Prospectus Law and the MiFID rules of conduct do not apply. Nevertheless, if the instruments have a payment or exchange function, other regulations may apply to the instruments or the persons who provide certain services relating to those instruments.
The FSMA document further separates crypto-assets with an issuer into several categories. Assets that represent a share in the losses or profits are securities if they are transferable, and financial instruments if they aren’t. Digital assets that prove a right to the delivery of a service or a product are considered securities if they can serve as investments, and don’t fall under the discussed laws if they can not.
The Belgian Regulator concludes with a warning that the document doesn’t cover all possible cases. Furthermore, it cautions that even if a digital asset can’t be considered a security or a financial instrument, other laws may still affect it.
A Contrast With US Regulators
Unlike in Belgium, a tumultuous and often controversial struggle over the regulation of digital assets is being waged in the United States. Both the Securities and Exchange Commission and the Commodity Futures Trading Commission have been actively seeking more authority over cryptocurrencies.
SEC’s Gary Gensler in particular has often been in the crosshairs of crypto advocates over his aggressive policies with some going so far as to call the Commission under his leadership a “shakedown authority”. The Chairman also recently went on record stating that most stablecoins, as well as post-merge Ethereum, are most likely securities.
The recent collapse of FTX and its network of companies renewed both the calls for more regulation and the questions over the actual role of the SEC and similar agencies in the market. In the aftermath of recent events, some politicians voiced their support for decentralized finance, while others, like Elizabeth Warren, expressed their opinion that cryptocurrencies could “take down the economy”.