Regulators Are Guarded But Getting There, July 3-10

Every Friday, Law Decoded delivers analysis on the week’s critical stories in the realms of policy, regulation and law. 

Editor’s note

Policy changes slowly. Crypto desires to move fast. Sometimes fairly, sometimes perhaps not, the crypto industry frequently portrays old-fashioned financial regulators as calcified relics unprepared to deal with the coming ” new world “. 

To be fair, everyone generally seems to acknowledge that markets and trading systems need comprehensive upgrades, but national and international regulators are accountable to a wider array of concerns than any specific industry. The crypto industry sometimes takes that as a personal slight, waiting for some sudden burst of the regulatory dam. Progress is more like erosion.

That being said, this week has seen some hopeful if oblique changes in regulatory posture. I’ll be trying to patch together some major developments from the SEC’s attitude toward security tokens, as well as the unconfirmed first public offering by way of a crypto exchange, and also deciphering the newly announced strategy from the CFTC.

Kollen Post, Policy Editor, @the_postman_

Security tokens see light shining at the end of the SEC tunnel

Not that long ago, a particular strain of industry hype promised that tokenized securities would be blockchain’s killer app. However, the plight of reconfiguring world wide securities markets has ended up taking a while. This week saw the launch of a new product by Arca in the U.S., a tokenized fund based primarily on Treasury securities. 

Arca had been dealing with the Securities and Exchange Commission for just two years, wanting to satisfy them that the fund and its own attached ArCoin — with peer-to-peer trading — can meet all necessary AML/KYC requirements and supply investors with secure trading. The proven fact that the fund is based on low-volatility government securities certainly helped, as does the fact that trading will remain relatively siloed in one portal for now. 

An extensive roster of firms is courting the SEC with inventive formats to supply retail investors new types of digitized investments. The carnage of manila folders and red tape over a Bitcoin ETF continues, while Wilshire Phoenix recently changed tacks to file a BTC trust with the commission, but those are both investments that are at the least somewhat centered on a cryptocurrency. 

There are an amount of functioning digitized securities unconnected to any given crypto asset within the U.S. already. Limited markets on which to trade really are a major section of that current hold-up partially because it takes so long to have any proposal through the SEC. This week, the SEC also voted on changes to registration beneath the 1940 Investment Company Act. They promise “an expedited review procedure for applications that are substantially identical to recent precedent.” Which is to say, these pioneer projects might have just gained some leverage.

CFTC promises new crypto framework as chairman finishes his first year

With its more limited purview, the Commodity Futures Trading Commission is generally a less aggressive regulator compared to SEC. Indeed, CFTC Chairman Heath Tarbert commented this week that his commission is waiting on the SEC to look for the status of all tokens as securities or commodities. Nonetheless, the recent priority the CFTC added to solid rules for crypto asset and futures trading is major news for the industry. 

The CFTC’s new strategy guidelines are specially noteworthy, given Tarbert’s well-documented interest in the sphere and the fact that the brand new strategy lines up with the rest of his term as chairman. July 15 is in fact the conclusion of his first year, so the commission’s presence in the public eye over the past week could be regarded as a sort of anniversary celebration.

At this aspect, the term “regulatory clarity” has lost more or less all meaning, learning to be a convenient and inoffensive buzzword. Similarly, “innovation” is a word that stakes no specific ground, but nobody can definitely object to it. As a point of policy, the vision that the CFTC or Tarbert himself will work toward — the “holistic framework,” as the recent publication puts it — for crypto assets remains cryptic. 

But by the same token, while political language is dependent upon vague goalposts, the inclusion of digital assets as a priority in a four-year plan, that has certainly been the subject of long-standing backstage debate, is nothing if not meaningful.

Coinbase is going public, maybe

Coinbase, the flagship crypto exchange of U.S. compliance, may be trying to go public later in 2010. Per unnamed sources talking to Reuters, Coinbase has been in conversations with the SEC to issue the very first public stock in a crypto exchange in the country. 

The information is difficult to confirm. Coinbase is notoriously uncommunicative with the media, but rumors of an IPO may be part of a method to build hype. Still, going public will be the next logical step. 

The benchmark for a unicorn is really a privately held company valued at over $1 billion. A 2017 funding round put the valuation on Coinbase at $1.6 billion, several that the firm shattered with a $300-million investment round that raised that overall valuation to $8 billion in 2018.

Based in San Francisco, Coinbase is certainly focused on making crypto work within the confines of U.S. regulation. Whatever happens with their IPO may very well be either a rallying cry or even a cautionary tale for the.

Further reads 

Jerry Brito, the first choice of Coin Center, writes on the way that the CBDC conversation has misconstrued obligations to do AML/KYC on private transactions.

For Brookings’ TechStream, Carlos Ignacio Gutierrez asks whether current legal structures are prepared for the long-promised AI revolution. 

The Cyberlaw Podcasts discusses recent police breaches of encrypted networks housing criminal activity.



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