28th June 2022 > > US regulation.

tl;dr

The clarity of US regulation is moving along at a pace, for everyone’s benefit.

Market Snap (at time of writing)

Market Wrap

Whilst Putin is merrily massacring Ukrainian citizens innocently going about their business in a shopping mall, and some Western commentators are talking up the prospects of direct confrontation between this psychopathic war criminal and the West, risk markets discount any prospect of that happening any time soon.

Curious Cryptos’ Commentary – US Regulation

On the 15th June, the CCC gave a short update to the proposed bill for legislative clarity over cryptos in the US:

“Over in the US, there is continued fall-out from the Lummis-Gillibrand Bill (see CCC 8th & 9th June 2022).

Again, a very sensible piece of regulatory legislation has introduced an area of uncertainty that may scupper its chances of being adopted.

Specifically, the legislation classifies BTC and ETH as commodities - and therefore regulated by the Commodity Futures Trading Commission (CFTC) – but stays silent on whether the thousands of alts are securities – and therefore regulated by the Securities Exchange Commission (SEC) – or not.

Gary Gensler, Chair of the SEC, is continuing his campaign to classify all cryptos as securities:

“We don’t want to undermine the protections we have in a $100 trillion capital market. Like behaviours should have like treatment.”

It would be better for everyone involved if this question was settled once and for all, giving nascent crypto businesses clarity and certainty as to the regulatory environment going forward.”

Taking on board this heartfelt advice from the CCC, Gary Gensler, Chair of the SEC, has stated in an interview with Mad Money host Jim Cramer on CNBC, that:

“Some, like bitcoin, and that’s the only one I’m going to say … are commodities.”

Given that BTC accounts for nearly half the market capitalisation of cryptos, that is one helluva a lot of clarity right there.

It is important to note that Gary’s predecessor, Jay Clayton, made a very similar comment.

It is now all but impossible for the authorities to row back on this classification for BTC which is extraordinarily good news, for a reason I am about to explain.

The SEC has approved futures based exchange traded funds (ETFs) for BTC but has consistently rejected spot based ETFs. The logic and rationale behind this decision is twisted and does not stand up to scrutiny – I won’t repeat the fallacies here, you can easily find them in past editions of the CCC at https://www.curiouscryptos.com/blog.

Now that Gary has publicly stated that BTC is a commodity, we can expect that approval for spot based ETFs passes from the SEC to the CFTC, who are all but guaranteed to give the green light.

Futures based ETFs suffer from an in-built and sometimes material underperformance to spot based ETFs. Removing liquidity risks, execution risks, pricing risks, and most importantly custodial risks, a spot based ETF for BTC will bring in a whole new swathe of retail and institutional investors.

…

What of ETH?

Jay Clayton declared ETH as a commodity.

Senators Cynthia Lummis of Wyoming and Kirsten Gillibrand of New York are also convinced of this stating at the time of the publication of their proposed bill:

“I don’t think CFTC is the primary regulator. They just have the obligation to regulate Bitcoin and Ether, the majority of cryptocurrencies today.” (Kirsten)

Indeed Kirsten went further claiming:

“Most cryptocurrencies go to the SEC [...] Bitcoin and Ether would be certainly commodities, and that's agreed upon. That’s agreed with Chairman Gensler as well as the chairman of the CFTC.” (Kirsten)

Gary has not yet conceded this point publicly but let us hope he does so soon.

That will give regulatory clarity to 60% or so of the total crypto market capitalisation.

That is a very good outcome just weeks after the bill was proposed and is likely to make the passage of the bill materially unchanged through both houses that much easier to achieve.

…

And what of the alts?

The SEC has some of them in its sights, claiming they are securities, and have breached securities laws. The most notable of these is Ripple (XRP), though it is far from alone.

I am not involved, and I do not know very much about the situation – with so many lawyers, and courts active in this case, I am not going to speculate about the outcome. Though I do note that Brad Garlinghouse, CEO of Ripple Labs Inc., has stated that if they lose the case, Ripple Labs Inc. will leave the US and move elsewhere.

Someone should tell Brad that threatening the US government, US law courts, and US regulators, is not a good look.