The U.S. Securities and Exchange Commission (SEC) chose to omit its first definition of "digital asset" from a recent rule passed by their commissioners on Wednesday. This decision seemed at odds with other recent moves meant to incorporate cryptographic elements into existing laws. The SEC had previously proposed a redefined version of the term "exchange," as well as a policy that could prohibit investment advisers from keeping assets at cryptographic firms.

The definition of a digital asset was initially included in the SEC's 2022 proposal to review mandatory disclosures for hedge funds. This definition described digital assets as those "using distributed ledger or blockchain technology" and encompassing virtual currencies, coins, and tokens. Feedback from two of the SEC commisioners and the Securities Industry and Financial Markets Association surfaced, concerning whether the definition was overly broad.

To explain their decision to nix the definition of digital asset, the SEC wrote a footnote that said they were still considering the term and were not adopting it at this time. The Agency has yet to provide clear regulatory clarity regarding digital assets, leaving this revolutionary concept to remain in limbo.

Regulators are no more enlightened about what cryptocurrencies are, though their presence is impacting the SEC's enforcement actions and rule proposals. This lack of clarity is made even more glaring by consumer advocacy groups like Americans for Financial Reform, which endorsed the SEC when it set up a category for disclosing digital assets.

Anne-Marie Kelley, a partner at Mercury Strategies and former SEC official, surmised that the definition of a digital asset may have been omitted as to avoid recognizing uniqueness in a term that's considered a security according to SEC laws. The SEC's continued absence of clarity is concerning as this affects countless stakeholders, from investment advisers to digital asset investors.



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