The GENIUS Act - Crypto Regulation...
With A Crowdfunding Twist
Disruptor Nation,
On July 18, President Trump signed into law the GENIUS Act.
We can see a wink toward the president (who, we are assured, got great marks at Wharton) in the name, but in typical Washington-speak, GENIUS is also an acronym.
It’s short for the “Guiding and Establishing National Innovation for US Stablecoins” Act.
So as always, it’s a mouthful.
But the key word here is “stablecoins”…
We’ll get into what those are specifically in the second part of the series, as it’s a big part of the reason we felt compelled to cover the story.
But there are multiple important takeaways here.
So let’s start with the BIG picture.
Crypto Current, See?
(Sorry, I can’t duck a bad pun to save my life.)
Even if you don’t already know what a stablecoin is, I’m sure when you saw the word “coin”, you probably thought “crypto”.
And you’re right.
Stablecoins are one variation of the coins and tokens that make up the cryptoverse.
Again, more on that soon.
But before we get there, we need to take a second and absorb what the GENIUS Act represents for purposes of the WHOLE of federal law.
And it’s a doozie.
For years, there’s been this huge standoff between the cryptosphere and the government.
And the broad rollout and widespread adoption of crypto has been slowed down to a crawl as a result.
Basically, there’s been a big debate for a long time, first about what crypto IS, and second (and related) about how it should be regulated.
Is it a currency?
A security?
A commodity???
Most of us might say, WHO CARES?
But until the government decides what a new innovation IS, they can’t (or at least won’t) make rules around how it is allowed to work.
And if there are no rules, companies in the space—and perhaps more importantly, potential investors in those companies—are very slow to make moves, because they’re scared they might get into hot water.
And for crypto, government guidance just made matters worse.
For a long time, the government basically threw up its hands and said “just follow the existing rules!”
But with no clear guidance on WHICH rules applied (because again.. the government hadn’t formally opined on how to apply those existing rules to crypto), everybody in the space was left walking on eggshells.
Add to this chaos the fact that, whatever the government might say about the topic, crypto IS different in some ways from currencies, commodities and securities.
Depending on what type of crypto we’re talking about, it might fit into some or all of those categories, and in some instances it’s different enough that it might not fit perfectly into ANY of them.
So by the government’s refusal to give either new rules or good clarification on old ones, it created an EXTREMELY gridlocked environment for the whole space.
You might say “typical, incompetent government!”
But in this case at least, you’d be wrong.
This didn’t happen because of incompetence.
Fiat About It
Most people in the crypto space believe—and there’s strong evidence to support the idea—that this gluey mess was 100% intentional.
The idea goes that the government hates crypto because Bitcoin and other cryptocurrencies have potential to replace the dollar (by which we mean THE Dollar, the Greenback, USD).
And since our economy is entirely propped up by debt, which the rest of the world buys largely in US dollars, along with the global oil market which is priced mostly in US dollars, if people no longer want the dollar, what happens to America??
Anyway, regardless of why, those of us in the crowdfunding space have seen LOADS of anecdotal evidence that the government is NOT a fan of crypto.
The best example arises in Regulation A+ deals.
When an issuer wants to raise money using the more streamlined “Reg CF” rule exemptions, they can just file their paperwork and go.
And we HAVE seen some crypto/token raises under Reg CF.
But when you want to run a larger Reg A+ crowdfunding offering, you not only have to file paperwork with the SEC…
But they have to sign off on it.
Normally there’s a pretty quick review process with some back and forth… It can take a few months before the SEC finally “qualifies” your offering, meaning you’re allowed to start selling stock to the public.
And as crypto got bigger, we started to see some crypto groups try to use Reg A as a vehicle to reach retail investors in a government-regulated and -approved way.
But we all started noticing that if an issuer used the word “crypto”…
Or “token”…
Or even “blockchain”…
In their government filings, guess what happened?
The deals got hung up.
They sat in limbo.
They didn’t GET qualified.
And from the SEC’s responses, you could tell the reason this was happening was directly due to those crypto ties.
The problem was so bad, that whenever a crypto-related deal DID manage to get qualified, the whole space was stunned, and tried desperately to figure out how.
This is still a problem today.
I’ve sat on recent calls with some of the most prominent crowdfunding lawyers in the industry, and they ALWAYS say:
“Just don’t do it.”
But now, for the first time, we appear to be seeing some light at the end of the tunnel.
Because now, for the first time, the federal government passed an actual law explicitly creating formal rules about ANY piece of the cryptosphere.
And with President Trump’s more friendly views on the crypto space, there’s reason to hope this is just the beginning.
And if there are RULES, then companies and investors have an idea of what to DO without getting fined into oblivion at worst, or sandbagged with infinite delays at best.
So, that’s the big picture.
US crypto industry regulation.
For the first time ever.
Freeing companies in that segment to do business.
Take investments.
Make money.
Function.
Stay tuned.
Next time, we’ll zoom in.
Together, we’re going to get our heads around stablecoins.
And you’re going to find out how these new rules are laying the groundwork for just about every crowdfunding deal to generate better returns for its investors.
‘Til Next Time!
Sean Levine
Managing Editor
Disruptor Nation
