9th June 2022 > > US regulation update.

tl;dr

The Responsible Financial Innovation Act is not as clear-cut as it seemed to be yesterday.

Market Snap (at time of writing)

Market Wrap

Really there is very little to say.

Occasional Series – Rejoice! We are now past Tax Freedom Day

For the last 5 months and a bit of 2022 all our earnings have gone to the government. From today, we now start to reap the rewards of our own labour.

That is only one week later than a year ago.

I do think we are lucky to have a tax cutting government in charge, helping to relieve the cost of living crisis by leaving more pounds in your wage packet each month.

Oh, wait a sec …

Curious Cryptos’ Commentary – Update to the Lummis/Gillibrand legislation

In yesterday’s CCC we looked at the publication of the Responsible Financial Innovation Act, a new bill proposed by Senators Cynthia Lummis of Wyoming and Kirsten Gillibrand of New York.

My initial reading of the information available at the time seemed to indicate that cryptos generally would fall under the regulatory auspices of the Commodity Futures Trading Commission (CFTC) rather than the Securities Exchange Commission (SEC).

Such a situation would relieve the pressure on Ripple (XRP) and Binance Coin (BNB) both of which are under investigation by the SEC which has claimed that as securities the companies behind these coins were in breach of securities laws when the coins were issued in 2013 and 2017 respectively.

Following the publication of the CCC, Cynthia and Kirsten attended a press conference at which they clarified some of the key points, and gave insight into their recent discussions with Gary Gensler, chair of the SEC, and Rostin Behnam, chair of the CFTC.

Here are some highlights:

“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)

“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)

“The CFTC, although it will have the lion share by market cap, the majority of the digital assets ... have characteristics of securities that will require the SEC's disclosure capabilities ... The SEC's role in this is absolutely critical." (Cynthia)

…

This is a disappointing development, and not just for holders of XRP and BNB (for disclosure purposes I hold only a very small amount of BNB for trading purposes on Binance).

Yesterday it seemed to me that a very clear marker of delineation had been set allowing this new regulatory framework to be put in place, providing clarity for businesses wishing to invest in the development of the crypto revolution.

Of course, you should expect a squabble between the SEC and CFTC about the precise details of their regulatory purview, but it seemed that the CFTC had won the greater share. It is true that BTC and ETH are now firmly classified as commodities and not securities, but it seems that there is no settled position for any of the thousands of alts, including XRP and BNB.

…

We are now in danger of getting stuck in a regulatory quagmire, in which each individual alt is fought over by both agencies. Tony Tuths, head of the digital assets team at KPMG US had this to say:

“On the regulatory side the legislation calls for the CFTC to be the primary regulator but then carves out a wide swath of tokens that have attributes similar to securities for regulation by the SEC. It will be a struggle to decipher what exactly is in the SEC bucket but it could be the exception that swallows the rule.“

…

But perhaps I am being a little overcautious.

According to CFTC Commissioner Summer Mersinger:

“You’re seeing the industry coalesce around the CFTC becoming the primary regulator.”

Rostin himself believes this bill is a useful starting point:

“One of the trickiest things we’re going to have to do – and I think they address this very well – is deciphering between a commodity and security.”

Galaxy Digital CEO Michael Novogratz describes the bill as “wildly positive”:

“It’s shocking how many Democratic politicians I now have in the office getting up to speed and trying to determine the right stance on the crypto industry.”

Which is a most welcome development if true.

…

Finally, for the most positive spin of all, Messari founder Ryan Selkis sees this as an opportunity for what will one day be one of the most effective kickers for the wholesale adoption of cryptos by institutional clients:

“The Lummis-Gillibrand bill would go a long way in helping advance a bitcoin spot ETF, and removing Gary Gensler as a blocker for US crypto progress. It's not perfect, but it's a great starting point for comprehensive legislation.”