It was a busy week for cryptos on both the regulatory and corporate adoption front, but the highlight was the talk delivered on August 3 by SEC Chairman Gary Gensler who laid out his views on crypto at the Aspen Security Forum. Below, are the top takeaways (from JPM’s Steven Alexopoulos):
- Gensler highlighted that the crypto space is currently the “Wild West” where we don’t have enough investor protection. Gensler said the SEC is looking to maximize regulatory protection in the crypto markets and called on Congress to grant the agency more scope and resources to oversee the crypto sector.
- Gensler placed a heavy emphasis on a need for more regulatory oversight around crypto platforms including crypto trading platforms, lending platforms, as well as other decentralized finance (DeFi) platforms.
- A key test used to determine whether something will fall under the SEC’s regulation is the “Howey Test.” The test evaluates an asset with the following: “the investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
- Gensler anticipates that there will be more filings with regard to crypto ETFs under the Investment Company Act, which provides significant investor protections. He looks forward to the staff’s review of such crypto ETF filings, particularly if those are limited to CME-traded bitcoin futures (Bloomberg had a follow up to this “Gensler Gets Wish as Bitcoin Futures ETF Filings Land“).
- On stablecoins, Gensler maintains a similar stance and noted how they may also be securities and investment companies. Gensler said that the SEC will apply the full investor protections of the Investment Company Act and the other federal securities laws to stablecoins.
- The SEC is also seeking comment on crypto custody arrangements by brokerdealers and relating to investment advisers.
Besides Gensler, some other notable developments included recent moves at the OCC, a comprhensive bill to regulate the crypto market, an interesting decision by the Singapore central bank and of course, the tax treatment of crypto as envision in the Biden Infrastructure bill:
- US Infrastructure Bill, August 2: The US Infrastructure Bill includes language that will have impact on the cryptocurrency industry. The bill would require ‘brokers’ to report to the IRS information about a digital asset transaction such as specific prices. As defined in the bill, a broker is someone who is “responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person”. Adding to developments in the infrastructure bill, a bipartisan group of lawmakers introduced an amendment that would explicitly exempt crypto miners, developers, and custodians from the IRS provision (for more see “#DontKillCrypto Trends As Ted Cruz Warns Of ‘Dangerous’ Provisions In Infrastructure Bill“)
- Digital Asset Market Structure and Investor, Protection Act, August 2: US Lawmaker Don Beyer (D-VA) has recently introduced a comprehensive bill to regulate the crypto market The “Digital Asset Market Structure and Investor Protection Act” would allow the Treasury Secretary to veto the creation of stablecoins, direct regulators to define rules for decentralized finance, and possibly create a charter tor crypto exchanges, among other measures. It would also define which sorts of cryptocurrencies might be securities, which can be treated as commodities, and bolster tax data collecting for reporting purposes. The support for the bill and its timeline of passage are unclear.
- Monetary Authority (Central Bank) of Singapore, August 3: The Monetary Authority of Singapore (MAS) has granted its first “in-principle” approval to a virtual asset service provider for a Major Payment Institution License under the Payment Services Act Independent Reserve, the recipient of the approval, is a cryptocurrency exchange and the approval will allow it to operate as a regulated provider for digital payment token services. Several applicants were in the final stages of review for getting a license to operate as digital payment token service providers, the MAS said in the parliament.
- Office of the Comptroller of the Currency, August 5: The New York Times reported that the Biden Administration is Vetting Saule Omarova to run the Office of the Comptroller of the Currency. If appointed, Ms. Omarova could seek increased oversight over crypto and the banking sector. She has previously expressed that crypto allows banks to conduct activity outside the view of regulators.
- Fed Governor Waller on Stablecoins, August 5: In a speech before the AEI discussing the practical use of Central Bank Digital Coins, Fed Governor Christopher Waller said he favors stablecoins over CBDCs. He believes central bank digital currencies (CBDC) are “highly unnecessary” and reduce the market power of banks.
On the corporate side, it was a busy week as well, with JPM launching a bitcoin fund for private bank clients, ETF giant Invesco filing for a bitcoin strategy ETF with the SEC that will invest primarily in bitcoin futures – in compliance with Gary Gensler’s stated vision – as well as having exposure to other bitcoin funds such as the Grayscale Bitcoin Trust; there were also news out of Grayscale which hired David LaValle, former CEO of custom index provider Alerian to be its global head of ETFs, as it attempts to convert its $22BN bitcoin trust into an ETF, and finally Valkyre Digital Assets – an asset manager – is offering a trust denominated in Dash that offers exposure to Dash as well as yield from staking; the closed-end fund will be offered on OTC markets available to retail investors.
Finally, in terms of the latest crypto adoption news, we learn that tech-focused e-tailer Newegg Commerce will accept payment in Litecoin,becoming the first merchant to accept Litecoin as a payment method on the BitPay platform; restaurant chain Quiznos announced that it has partenered with Bakkt Holdings, which is the digital marketplace behind the Bakkt App, which will allow Quiznos customers to pay with bitcoin at select locations; Burberry and Louis Vuitton also made the news: Burberry will soon release an NFT game characters called “Sharky B” while a Louis Vuitton game will offer 30 NFTs; the marketing teams around other major fashion brands have also tapped into the buzz around NFTs; Last but not least, Google is again allowing crypto ads after the company released new policies. The policies place restrictions on advertisers with the requirement that they be registered money service business with FinCen, and as a state-registered money transmitter, a federally-chartered bank or a state-chartered bank.