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8th June 2022 > > US regulation.


A regulatory earthquake has been unleashed.

Market Snap (at time of writing)

Market Wrap

The perpetual futures market has regained equilibrium without carnage to the leveraged shorts.

It’s been a while since we had a combined giggle at the techies, but I came across an absolute gem today.

I give you Twitter user Phoenix who explains future price action thus:

“On our way towards a whole month inside a mini-range again to fully deploy the flip-flop-your-bias-non-stop-angry-pleb-and-gtfo. *Ppl fomoed the top, lows taken again after the nuke, up we go again?*”

I can’t argue with him because I have absolutely no idea what he is talking about.

Curious Cryptos’ Commentary – US regulation

Yesterday saw the publication of the Responsible Financial Innovation Act, a 69-page document that aims to create a sensible and durable framework for the legislation and regulation around cryptos in the US.

If you are at a loose end today this is the full text:

It will be interesting in future editions of the CCC to delve into some of the detail, but for today we are going to focus on what I personally believe to be the most important element of all.

This element is going to dramatically impact the regulatory framework of cryptos for all time.

Gary Gensler, chair of the Securities and Exchange Commission (SEC) laid claim to full regulatory responsibility for cryptos when he initially took the job. At the time I thought this was a remarkably splendid idea, as he is a man well-versed in the intricacies of blockchain technology and cryptos.

Gary has since not lived up to full expectations.

The SEC’s very first major policy decision regarding cryptos was the approval of a futures-based BTC exchange traded fund (ETF). That approval relied upon the regulatory oversight proved by the Commodity Futures Trading Commission (CFTC) over BTC futures, a misplaced delegation of responsibility if the SEC was serious about claiming full ownership of cryptos.

Meanwhile, the SEC has rejected all physical ETFs on the basis that the spot market is open to manipulation. Whether spot markets are open to manipulation, and the degree of that manipulation, is a personal judgement, but one cannot claim that any assumed manipulation is only relevant to spot ETFs and not future ETFs. This is an obviously nonsensical argument, but its logical fallibility seems to have escaped scrutiny and attention by anyone - except the CCC - in the past.

This false distinction drawn by Gary immediately ceded the ground he initially tried to stake for his regulatory hegemony.

Having ceded this ground in practice, this new bill enshrines it in law, if passed in its current form.

Sponsored by Senators Cynthia Lummis of Wyoming and Kirsten Gillibrand of New York (a duo not known for having convergent views on many topics) an introduction to the purpose of the bill defines it as “stablecoin regulation, banking, tax treatment of digital assets, and interagency coordination.”

That is a very interesting comment stating upfront a focus on stablecoins - and after the Terra fiasco that was always going to be the case.

But what caught my attention is a statement about further clarity on “interagency coordination” that will be music to the ears of owners of Ripple (XRP) and Binance Coin (BNB):

“Understanding that most digital assets are much more similar to commodities than securities, the bill gives the CFTC clear authority over applicable digital asset spot markets.”

To justify this comment, the Senators refer to the Howey test, a process of determining if a transaction qualifies as an “investment contract”, which originated in a court case that the SEC won vs W.J. Howey in 1946.

As one can imagine, trying to fit current crypto innovation into a concept that pre-dates the computer revolution is a touch tricky and undoubtedly subjective. The discussion is far from over, but the SEC are taking the first body blows in the upcoming regulatory battle.

In advance of that battle, Kirsten made a very intriguing comment:

"It is our job fundamentally for Congress to write these laws and the regulators to implement them. They don’t decide what they get to keep and what they don’t.”

That wail of anguish you hear in the background comes from the SEC, not the CFTC.

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