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This is how a fintech Chief Compliance Officer explained it to me:

The industry that the SEC regulates is full of clever people who have a financial incentive to push rules as far as possible.

The concern is that if they provided a clear line between what is allowed and disallowed, that everyone will go right up to the line and then find creative ways to exploit how it’s defined.

The SEC prefers to keep the line fuzzy so that actors keep their behavior well on the “allowed” side.

If the line is intentionally fuzzy it doesn't make sense for them to lie about how the line is supposedly clear, because lying tends to diminish the trust and credibility of the SEC.

I still don't buy this explanation regardless, because it makes navigating the space impossible.

It's weird, because that line has been in place for decades, and the financial industry has mostly had no problems complying, yet a bunch of script kiddies trying to get rich are finding it oh so difficult to stay on the right side of the line?

Ain't that just the darndest thing.

The line seems to be unclear and fuzzy as stated by others, which will naturally cause problems with compliance, but you clearly have a personal axe to grind so I'm not gonna entertain that.

This sounds like a ploy to justify selective enforcement against whoever the regulators don't like at any given moment.

Sure, vague rules allow misdeeds through enforcement, but luckily we have the court system to police that. Meanwhile, vague rules allow the SEC to target the bad behavior, and not have to constantly be begging the legislature for new laws every time someone comes up with a new grift.

It's basically "unsportsmanlike conduct" for the financial system. The NFL doesn't tell you exactly how hard you have to push the other guy before it counts as unsportsmanlike conduct, because that would be stupid, extremely context sensitive, and only help players push each other around more. It's up to you as a player to actively stay on the right side of the fuzzy line for that exact reason.

Every person on here who works in tech should understand how stupid "no the rules need to be clear" is when it comes to bad actors and adversarial systems. Imagine if it was expected for you to clearly explain to a user who failed your internal risk system what caused them to fail, so that they can fix it and try again. Imagine if you were asked to implement a system that explained clearly to your users what would get blocked as "carding behavior". It's clear to those who have built or worked with these kind of systems how utterly stupid and self defeating such an endeavor would be.

There isn't even an unambiguously correct definition of "Fraud" in the first place!

Thanks, this makes sense to me (even if I may disagree with some of the "implementation"), so I really appreciate you sharing your knowledge.

> The SEC prefers to keep the line fuzzy so that actors keep their behavior well on the “allowed” side.

In crypto it appears the exact opposite is happening.

Then crypto will get sued again and again while the SEC refine their internal model of what is lawful based on the outcome of court cases.

On the bright side, it clarify things. The downside is it cost a lot of money.

They can always do what traditional money does, stay within the safe zone with well established precedents.

"The people we're regulating are really clever so we can't tell you what the rules are" Is a terrible way to handle things.

Inconsistent enforcement of rules is a proven way to instill caution via fear and uncertainty.

When you are dealing with sociopaths (i.e. most of the industry that the SEC regulates), reason and compassion are useless as tools for getting people to do the right thing ... but fear still works.

> Inconsistent enforcement of rules is a proven way to instill caution via fear and uncertainty.

Where was this proven? My experience is the opposite. Inconsistent enforcement makes people think they can get away with breaking the rules. And because the enforcement is inconsistent, they have a guaranteed non-zero probability of succeeding.

SEC keeps insisting that “the law is clear” and they’re just enforcing the law. That their job isn’t to explain the law to people, or how exactly to behave to not break the law. Their approach is “if we think you’re breaking the law we will take action, and things will get hashed out in the courts.”

It makes sense that the SEC probably does not have the resources to explain to anyone engaging in any securities activity exactly how to behave, but crypto is untrodden ground and they could have provided more guidance there.

The SEC's position seems eminently reasonable to me. It's not the government's job to give free legal consultation for how to skirt the law. I could call up my local district attorney and ask him to explain the nuanced minutiae of the law as he understands it so that I can skirt around that in some clever way, but I expect he would refuse to answer my questions and rightfully so. If I want that kind of advice, I have to hire my own lawyer.

Cryptobros can't seriously expect anything different, so these complaints are just political theater to prod lawmakers into acting (e.g. explicitly legalizing their schemes.)

I see you have no experience with actually dealing with regulatory law and how stupid and vague it can get

I'm well aware of how vague and stupid regulatory laws can get. And I know that the government only provides clarity when they deign to do so, I'm not entitled to it.

I can write a letter to the ATF asking if my shoestring with two loops tied in it counts as a machine gun if I also own a certain rifle, or if I only own certain parts of that rifle, or if I sell it to a guy who owns that rifle; they might respond but maybe not. (As a matter of fact they have made public statements concerning such shoestrings, but only because they chose to.)

In the end it comes down to poorly written laws. The laws overreach broadly with vague language, and then citizens and corporations are afraid to act due to fear of lawsuits.

The idea of "guidance" is "hey, would you fine or sue me if I act like this, in this gray area, that's genuinely hard for me and my lawyers to determine if it's within the law?"

The court decisions to refute the ATF on bump stocks and SEC on crypto ETFs show the laws were written fuzzily there. SEC's insistence that the law speaks for itself looks kind of dishonest, or ignorant.

If you've never worked with a rules engine that interacts with the mushiness of human interaction than you don't understand how insane it is to claim there needs to be "very clear" rules.

Human interaction is fuzzy, THAT'S why the rules are fuzzy. Also, the SEC itself isn't the arbiter of what the law says, that's the court's job.

Go ahead, try to write a complete and comprehensive and unambiguous system for defining human interaction.

> Also, the SEC itself isn't the arbiter of what the law says, that's the court's job.

To the extent to which we are taking about the laws (and not rules), it is worth noting that the SEC--despite claiming these laws are clear--is almost hilariously bad at understanding them given that they are now on a losing streak in the courts ;P. So far, they have lost on their enforcement of Ripple, were told the reasons they denied Greyscale were unacceptable, and the courts have them on a right timeline (refusing to cede jurisdiction) to provide to Coinbase the regulatory clarity they petitioned for (which is currently supposed to happen by October 11th, but we'll see if they figure out how to delay further).

Frankly, the SEC is probably feeling their way around too. They have an internal model of what is and isn’t lawful and they sue based on that. But that’s their internal model, not the actual law - as decided by politicians and the courts. Their internal model will be revised based on court rulings.

Frankly, these crypto bros seem to be trying to get the SEC to publicly contradict themselves, and plan to use that as ammo to turn the court of public opinion against them, but the SEC isn’t interested in playing their game.

Re: existence of an ETF, it’s the only way to “hold” BTC (or ETH) in an account with tax advantages (such as TFSA or RRSP in Canada, equivalent to Roth IRA and 401K in the US respectively).

Why would a government want to subsidise cryptocurrency with tax advantages?

Proponents think it will collapse the dollar and bankrupt all governments.

Opponents think it's negative-sum and the sooner cryptocurrency dies the better for industries that actually create value.

Either way it's a (mild) attack on effective government and civilization more generally. The less subsidies for traders the better, from the perspective of a currently-influential government.

I think the argument is that if the government does not want to extend this subsidy to certain assets, Congress can pass laws excluding them. The current set of laws doesn’t necessarily give the SEC the authority to unilaterally decide broad questions about which types of assets are “bad for society,” and the SEC has to work within the legal framework it was given. But obviously I’m not a lawyer.

At least in the US, this is just false. It's definitely possible to hold Bitcoin (and other property) in an IRA.

a other reason to hold spot ETF, it is another way to hold crypto custodially and might give you a way to bet on Bitcoin without fear of a wrench attack

Wouldn't the wrench attack in this instance just make you type your password to your broker, sell the ETF, and then transfer the money to some third party bank account?

This is already the case for the majority of asset (stock or bond) wealth. The threshold to pull this off is way higher than simply getting a private key or hardware key device off someone. In the first case there are many controls to halt or prevent this sort of thing. In the second, if the perp gets the key, they've won.

You have some possible recourse if someone steals your securities without your authorization.

The reason why it's more appealing for criminals to do it with crypto is that claw-backs are essentially impossible.

My guess would be they don't have anyone in-house who understands it all well enough to write clear guidance.

The SEC chief is Gary Gensler who used to teach a Cryptocurrency course at Harvard...

Oh! Then my guess was terrible!