Caracas Chronicles

Photo: Supcacven

Ready for more chavismo-sponsored crypto asset insanity?

Last week both the Constitutional Assembly (ANC) and President Maduro issued decrees regarding cryptoactives. As seems to be the rule now, both acted unconstitutionally because those regulating powers belong to the National Assembly. This is a Three Stooges mess, so we’re here to help you shed light into this night of absurdities.

Ok. What do the decrees regulate?

One decree —the constitutional one— sets the basis for crypto asset dealings in Venezuela (including petros), theoretically granting the executive powers to regulate the market. The other —the presidential decree— “creates” the Superintendence of Cryptoassets, SUPCACVEN (weird, since such authority has been acting for some time now). It also uses the “powers” granted by the constitutional assembly to regulate “mining”, exchange houses, virtual intermediation and other activities.

Important restrictions and obligations are imposed, some explicitly. For instance, the presidential decree forces all parties conducting activities with crypto assets to register in the Superintendence. Public authorities and entities must also promote and guarantee the use of cryptocurrencies as means of exchange (“means of payment”) in the public sector. There are also implicit limitations: the wording of both decrees directs parties acting as intermediaries to be authorized to operate by the Superintendence.

Can such decrees impose this type of restrictions?

No.

The Constitution establishes two important rules:

First, individuals and corporations have economic freedom, which entails the right to conduct economic activities freely. The State may impose limits, yes, but they’re imposed by law (i.e. statutes enacted by the legislature), not by other type of rules. Regulations issued by the executive may detail the framework, but a law must be the basis for any limitation.

Whatever their legal nature, cryptos are definitely in the realm of economic stuff and, thus, any regulation must be by established by law.

Second, when referring to crypto assets, we’re talking about economic matters, that must be regulated by law. Understanding the legalese of crypto would require an article of its own, but for the purpose of this one, it’s enough to understand that whatever their legal nature, they’re definitely in the realm of economic stuff and, thus, any regulation must be by established by law.

Legislation in these matters is restricted by Constitutional mandate to the National Assembly. No two ways about it.

Chavismo is self-conveniently arguing that the constitutional assembly has “superpowers”, allowing the takeover of other authorities’ powers. These are, in fact, usurping powers. Again, this is a serious subject deserving its own discussion, but keep in mind that such argument ignores constitutional constraints crucial to democracies.

Let it be clear, fellas: a constitutional decree is not a law, not even a “constitutional law” is a law. Basically, they’re enacted by an authority not empowered to legislate and, since decrees are not laws, any implicit or explicit provision seeking to impede, restrict or limit transactions in cryptoassets is null and void.

These limitations don’t work, got it. But should the State enact valid regulations on cryptocurrency?

SEC’s Chairman, J. Clayton, has made arguments about the need to protect “main street investors” of cryptocurrencies. There’s less protection in that market, he says, than there is in the traditional securities market.

And we agree.

The approach of the U.S. regarding cryptocurrency has been dual: Sometimes they’re securities, sometimes they’re commodities. Two different authorities (SEC and CFTC) have control over each, but the important part is, certain conditions apply.

The authorities think the regulatory framework of the Capital Markets Law does not apply, meaning cryptocurrencies would be ruled by regular civil and commercial laws.

In the case of Venezuela, we don’t have dual regulation. Only the capital market rules could apply, but that doesn’t properly fit cryptocurrencies. Even if cryptocurrencies qualify as securities, the authorities think the regulatory framework of the Capital Markets Law does not apply, meaning cryptocurrencies would be ruled by regular civil and commercial laws.

This probably needs correcting, either by recognizing them as securities subject to control, or by treating them separately, aiming at investors’ protection. We prefer the former.

Woah, okay. Anything else we should know about the decrees?

Oh, many things. But let’s mention two:

The constitutional decree reinforces the illegal “backing” of petros with oil reserves. It authorizes, again, the setting apart of oil reserves to serve as collateral for the “creation and issuance of the Petro.” As we’ve said before, this may be ineffectual in economic terms (and is definitely unconstitutional), with many legal consequences rendering petros illegal.

It also authorizes the creation of a new state-owned entity (Tesorería de Criptoactivos) to, among other things, issue the State’s “crypto assets.” Such entity was created by another presidential decree issued on the same date. More than answers, we have questions: how is this entity going to issue petros, since they’re already issued and —allegedly— partially sold?

The decrees complicate matters on cryptocurrency and don’t solve specific problems created by, and in connection with the petro.

Because this wasn’t chaotic enough.