In the latest development, the Republican party representatives of the US Senate Tom Emmer and Patrick McHenry urged the Chief of the US Securities and Exchanges Commission (SEC) chief Gary Gensler to clarify the SEC’s stance on cryptocurrency airdrops.
They are demanding definite answers to their queries within a month. Tom Emmer and Patrick McHenry expressed their concern about the SEC’s assertion about airdrops in a letter dated September 17.
SEC’s Stance Regarding Crypto Airdrops
Airdrop events are a source of free crypto earnings for the users while the cryptocurrency firms view it as an instance of marketing their platform. However, the SEC’s view on airdrops is different.
Even though the SEC has not yet unveiled any specific rules or enforcements targeting cryptocurrency airdrops, it has clearly stated that airdrops may qualify as securities and should be governed by specific laws.
The SEC has made some recent interferences, which underlines its stance. In September 2022, the SEC penalized the Hydrogen Technology Corporation for distributing crypto asset securities in the name of airdrop.
The corporation had distributed 11 million Hydro tokens through its airdrop event, which the SEC viewed as an unauthorized distribution of securities.
In another similar incident, the SEC sued Justin Sun and other firms for distributing BitTorrent (BTT) as unregistered airdrops. SEC’s general stance on the adoption of decentralization and peer-to-peer transactions is not hopeful for crypto trading firms.
Gist of the Letter Sent to Gary Gensler
Tom Emmer had shared a copy of the letter that he and Patrick McHenry had sent to the SEC chair Gary Gensler. They have said that the primary goal of cryptocurrencies and blockchain technology is to bring in decentralization, which is undermined by the regulatory interference of the SEC. According to the letter, such enforcement efforts and assertions are deterring American citizens from shaping the next iteration of the internet.
In this letter, they have sought the response of Gary Gensler on five pressing issues that need to be addressed.
- There is a conflict in the stance of the SEC regarding the airdrop tokens. SEC has classified them as securities as they satisfy the criteria given by the Howey Test. However, in a recent court filing, the SEC took the stand that digital assets are not essentially securities. The letter wants Gary Gensler to clarify this conflict of opinions.
- Other companies often provide intangible rewards to their customers in the form of credit card points and other means. Such rewards aimed at encouraging engagement do not fall under the ambit of the Howey Test. The letter questions the SEC’s terms of distinction between such rewards and the airdrop rewards given by digital asset platforms.
- The letter asks the SEC Chair to clarify the necessity of classifying digital assets as securities and subjecting them to double scrutiny when the value of these coins increases with demand like that of a commodity. Commodity trading does not come under the scrutiny of government organizations.
- The letter has sought clarifications about the market implications of considering airdrop tokens as securities.
- Tom Emmer and Patrick McHenry also seek clarification regarding whether the SEC has ever considered the potential for loss and economic instability caused by a fall in tax revenue from the airdropped digital assets if they are classified as securities.
The letter reiterates that such regulations on the part of the SEC have only contributed to Americans being excluded from participating and benefitting from the airdrop events. SEC’s efforts at prohibiting its citizens from cryptocurrency airdrops will only slow down the nation’s iteration process towards adopting decentralization.
The Bottom Line
Tom Emmer and Patrick McHenry have asked Gary Gensler to express his response to these concerns before September 30. The tight deadline that they have given the SEC chair shows the potential impact of this decision on the American economy.
This move reiterates the Republican faction’s general discontent about the incumbent government’s lack of foresight in terms of crypto adoption. As the US general elections are set to happen soon, the response of Gary Gensler regarding these concerns is something that the nation is looking forward to. His response will no doubt have an impact on the general public.
