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Why is the SEC afraid of the Telegram cryptocurrency?

Why is the SEC afraid of the Telegram cryptocurrency?

15 Nov, 2019
3 min read

The US Securities and Exchange Commission (SEC) is trying to legally ban Telegram's Gram cryptocurrency and return funds to all investors who have already invested in this asset. The SEC believes that the company is in violation of the US Securities Act.

Why SEC doesn’t want Gram to be issued?

The reason for the lawsuit is because the company planned to sell Telegram tokens as non-securities, that is to say, they wouldn’t fall under financial regulation. The SEC did not agree with this approach, as it relates to this financial instrument to the category of securities. The commission emphasizes that Telegram should have complied the release of its cryptocurrency in accordance with its requirements.

According to the American financial regulator, Gram has all the attributes of a security. In particular, it can only be used as a means of investment, and not as a means of payment. In addition, Telegram declares that it will take active steps to increase the cost of Gram and reduce risks for investors. In this regard, the SEC doesn’t see the Telegram cryptocurrency as a digital currency, but as an investment contract, which is an obvious security from the US financial law perspective.

What are the real reasons for SEC ban?

These are official claims voiced by the SEC. Meanwhile, there are other, more global reasons for its dissatisfaction with the Telegram cryptocurrency. If we look at the current situation on a larger scale, we cannot ignore the fact that the United States has currently accumulated a large public debt. At the same time, the American authorities have unlimited opportunities for building it up, due to the issue of the dollar.

Today, the dollar maintains its position as one of the world’s major currencies, which neither the euro, nor the Russian ruble, nor the yuan has been able to compete with. And even the slightest threat to this hegemony is very sharply perceived. A similar situation was previously largely observed after Facebook announced its plans to launch a cryptocurrency, declaring that it could replace the US dollar.

The world financial elite is strongly opposing to anyone who is trying to violate the status quo in the current market. In the event that anyone, whether Facebook or Telegram, releases a cryptocurrency that will be in high demand, the United States will have much more difficulty servicing its public debt, the same applies to its growth - and this may lead to a recession in the US economy, and to a global economic crisis as a whole.

Does Telegram have any chances to win?

Why are the American authorities and the global financial elite, as a whole, unafraid of existing cryptocurrencies, but show their hostility to new projects? The fact is, for example, bitcoin (one of the most popular digital assets today) still doesn’t have many users - Telegram and Facebook have a much wider user base. Additionally, Bitcoin has a number of serious technical flaws and vulnerabilities, so the SEC believes that it should not be feared.

What are the prospects for a lawsuit between the SEC and Telegram? There is a great risk that this case will drag on, new details and claims will appear in it, which may ultimately lead to the “death” of the project, leaving it to gradually fade away.

Telegram, of course, is trying to defend its interests and has already taken some retaliatory steps, asking the court to dismiss the lawsuit (as its new product is not a security) and demanding monetary compensation, but it is very unlikely that they will be successful.

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