tl;dr
The Fed, the CFTC, and the SEC are all sprinting to achieve regulatory clarity for the tokenisation of capital markets in the US.
Market Snap
Market Wrap
Tomorrow we will see the publication of PCE for August, the Fed’s preferred measure of inflation, whilst on Friday the latest nonfarm payrolls will be out. The latter is one of Wall Street’s most treasured measures of economic activity whilst simultaneously being desperately flawed. Make of that what you will.
New multi-decade highs for the 10-year Treasury yield begin to suggest that we may soon see 6%, which will shock some.
Curious Cryptos’ Commentary – The regulatory sprint
Following the failure of the Senate to progress the CLARITY Act the Fed acted quickly to issue proposals for how stablecoin issuers can be compliant with the GENIUS Act. It is a smart move, for the wholesale adoption of USD-denominated stablecoins will underpin the new global financial infrastructure that is currently being built. This will enhance dollar hegemony. It will also create trillions of dollars of demand for short-dated US Treasuries suppressing yields both at the short end and the long end as the need for issuance out along the curve will be materially lower.
Note also that this process will make life ever more difficult for those Western governments that run annual deficits (that’s all of them bar Norway which sells a lot of oil to the UK amongst others) to finance those deficits with an ever-increasing debt pile. The two most exposed are the UK followed by France. Without action to convincingly set out a path that leads to balanced budgets allied with economic growth, both the UK and France are heading into deeply troubling debt market problems that will require money-printing on a scale not yet seen. This will likely also lead to a currency crisis for the UK, rewarding those who have diversified in the past into dollar-denominated assets. I think you know to what I refer.
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On the 21st of August the CCC predicted that the US Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) would provide a double-barrelled package delivering clarity if the CLARITY Act stalled in Congress. And that is exactly what has come to pass.
The CFTC has provided updates for the use of tokenised assets and the use of blockchain technology for record-keeping purposes:
https://www.cftc.gov/PressRoom/PressReleases/9303-26
Chairman Michael S. Selig explains:
“I’m pleased to see staff update these frequently asked questions consistent with the agency’s ongoing efforts to provide regulatory clarity for the crypto industry.”
The guidance allows for customer funds to be invested in tokenised assets so long as “… the tokenized form of the asset grants the holder legal and economic rights that are the same or functionally equivalent to the rights received by holders of the asset in its traditional form”.
As for documentation, the CFTC is clearly acting in an enlightened manner for agency staff “… would not object if a records entity utilized blockchain (or distributed ledger) technologies to create and maintain onchain records and satisfy its recordkeeping obligations”.
The tokenisation revolution has just been given a timely and welcome boost.
The CFTC has also submitted a proposal titled “Regulation Crypto Asset Transactions and Regulation Crypto Asset Markets” to the White House for review. This came just two days after the failure of the CLARITY Act, demonstrating that the CFTC has been well-prepared. I look forward to seeing the details of the final document. We can be sure that it will be very favourable to the crypto industry.
What a delightful chap Michael is.
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Not to be outdone, the SEC joined the party with new guidance:
“The Securities and Exchange Commission today issued an order granting temporary, conditional exemptive relief to Tokenized Securities Venues each a ‘TSV’ from the definition of ‘exchange’ in the Securities Exchange Act of 1934 (Exchange Act) to trade tokenized National Market System (NMS) stock using innovative permissioned automated market makers and liquidity pools”.
In plain English, capital markets have been given temporary relief to allow for the development and exploration of the benefits to issuers and investors alike of tokenisation technology. Chairman Paul Atkins explains:
“Today, the Securities and Exchange Commission is taking a significant step forward, within its statutory authority, to bring America’s capital markets into the digital age by facilitating onchain trading of certain tokenized stocks through the ‘Innovation Exemption’”.
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This outbreak of regulatory love of cryptos has one objective, that CFTC Chairman Michael Selig referred to during a US Treasury Market conference at the New York Fed a week ago:
“With developments like tokenization, onchain finance, and 24/7 trading, the next decade will likely bring more change to financial markets than the previous several decades combined … we've already laid the groundwork to continue doing so by embracing innovation, encouraging competition, rightsizing regulation and maintaining the trust that has made our markets the gold standard across the globe”.
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Why does this matter?
Regular readers already understand that the tokenisation of capital markets will provide an ongoing and material improvement in the cost of capital for all businesses, raising productivity, and making all of us wealthier than would otherwise be the case, even non-crypto investors. For those of you who are still a little unsure about the mechanics of tokenisation, Curious Cryptos Ltd. will be publishing a detailed guide later this week that will make all things plain.
The speed of change is increased by the adoption of enlightened regulation of this nature. The sooner it happens, the sooner we can reap the rewards that are now so tantalisingly close.
Source: https://app.rwa.xyz/