Want to survive the crypto winter? Start by inspiring regulatory confidence

Only the strong will survive the avalanche of bankruptcies, layoffs and volatility now cascading through the crypto sector.

Investors burned by flimsy promises or forced to panic-sell digital assets will want evidence that companies have undergone proper licensing and due diligence. Customers who buy, sell, borrow or loan crypto will want to rest easy knowing their assets won’t be lost. Prospective buyers, lenders, partners and employees will demand similar assurances.

The crypto winter won’t last forever, but the table stakes for market entry have changed. Federal and state agencies are ramping up their enforcement efforts, legislators are putting forth new proposals and state agencies are setting rules of their own.

To seize new opportunities and stay competitive as the seasons change, regulatory clarity will be key. Answering two key questions can help lay the groundwork.

The crypto winter won’t last forever, but the table stakes for market entry have changed.

Is my digital asset going to be considered a security?

Chances are, your digital asset is one of two things: a security (i.e., a financial instrument, like a stock or bond, that represents value) or a commodity (i.e., a basic good that is interchangeable with goods of the same type).

At present, the Securities & Exchange Commission (SEC) essentially considers every digital asset aside from Bitcoin and Ethereum to be a security. Though the Commodities and Futures Trade Commission (CFTC) and many others might disagree — and proposed bipartisan legislation would effectively put most digital assets under the CFTC’s jurisdiction — critics say the CFTC isn’t equipped to manage the workload and has significantly less experience than the SEC, which nearly doubled the size of its crypto assets and cyber unit earlier this year.

Want to survive the crypto winter? Start by inspiring regulatory confidence by Ram Iyer originally published on TechCrunch

Former US CFTC commissioner says crypto space has ‘dire need for regulatory clarity’

Many in the crypto space are becoming increasingly impatient as they try to navigate the muddy waters of crypto regulation without stepping on a law enforcement land mine.

Regulators, meanwhile, are trying to separate the bad actors in the crypto space — those actively committing fraud — from those who want to advance crypto and its market infrastructure, according to Dawn Stump, the former commissioner at the U.S. Commodity Futures Trading Commission.

“I think there’s a lot more work that needs to be done,” Stump told TechCrunch. “I think there’s a lot more work to be done on the regulatory-side front with regard to helping design regulations and coordinate regulation, internationally. In a way that makes sense.”

“This is going to sound very elementary, but I think more guidance is necessary [as well as] more thoughtfully set out expectations,” Stump said. “When I was at the CFTC, I always cringed a bit when it was suggested that the industry bears the burden to comply with the rules that are on the books today — and they certainly do — but in the same context it was sometimes suggested that it wasn’t the job of the regulator to hold their hand.”

The SEC rejected bitcoin spot ETFs again. Now what?

As governments worldwide continue to eye the crypto industry, some digital asset managers are pushing back against regulators in an effort to provide more legal investing opportunities.

The U.S. Securities and Exchange Commission on Wednesday rejected Grayscale Investments’ application to convert its bitcoin trust (GBTC) into an exchange-traded fund (ETF). Shortly thereafter, the firm — one of the largest digital asset managers, with around $20 billion in assets under management — filed a lawsuit against the SEC.

The SEC also denied Bitwise Asset Management’s application for a spot bitcoin ETF that day.

The SEC’s decisions aren’t a first for the industry; the government agency has denied over a dozen bitcoin spot ETFs in the past year alone while approving several bitcoin future-based ETFs.

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“Spot bitcoin ETFs trade based on the price of bitcoin itself, while futures-based ETFs trade based on the price of CME’s bitcoin futures product, which in turn is tied to an index,” Ken Goodwin, director of regulatory and institutional affairs at Blockchain Intelligence Group, told TechCrunch. “Bitcoin ETFs proponents argue that the futures markets are still based on the underlying spot bitcoin price, while the SEC notes that CME’s futures market is regulated by the [Commodity Futures Trading Commission].”

The SEC allows traders to bet on the value of bitcoin through CME’s bitcoin futures contract, a U.S. dollar cash-settled contract that serves as a once-a-day reference rate of the value of bitcoin in U.S. dollars, according to global markets company CME Group.

Craig Salm, chief legal officer at Grayscale, said on a Twitter Spaces that the SEC once denied both futures and spot bitcoin ETFs, at least “treating them fairly.”

But that was in 2017.

More recently, the SEC has continued to approve both long and short exposure bitcoin futures ETFs while denying spot bitcoin ETFs from coming to the market, Michael Sonnenshein, CEO at Grayscale Investments, said to TechCrunch. “That disparate treatment is in fact one of the most important arguments underpinning our lawsuit.”

Since the defendant of the case is a regulator, it will go to an appellate court and a decision should be finalized within nine to 12 months, Sonnenshein told Reuters.

The SEC’s rejection cites concerns about market manipulation and the lack of a surveillance-sharing agreement between a “regulated market of significant size” and a regulated exchange, Goodwin said. “This echoes concerns that the regulator has expressed for years in terms of rejecting other bitcoin ETF applications.”

GBTC holds 3.5% of all bitcoin in circulation, and its shares are the largest and most liquid publicly traded crypto exchange-traded products, Ryan Selkis, founder and CEO of Messari, wrote in a report. “Grayscale products are like ETFs, but not actually ETFs,” Selkis wrote.

“It’s crystal clear the SEC is simply not going to approve a spot bitcoin ETF until they have regulatory oversight of crypto exchanges,” Nate Geraci, president of The ETF Store, said to TechCrunch. “Even with the specter of a Grayscale lawsuit — and it’s a lawsuit that appears to have at least some validity — the SEC didn’t flinch in denying these spot bitcoin ETF filings.”

Barely outpacing snails, US lawmakers ponder regulating crypto

Image Credits: TechCrunch

The United States government took a long-anticipated first step towards comprehensive regulatory clarity for the digital asset space this week in the form of a new bipartisan Senate bill. As much as crypto bulls insist it’s still early days for the industry, it’s even earlier days for U.S. regulators — the bill isn’t expected to come to fruition until next year.

Hello and welcome back to the Chain Reaction podcast, where we unpack and explain the latest crypto news, drama and trends, breaking it down block by block for the crypto curious.

The proposed legislation, sponsored by Senators Cynthia Lummis and Kirsten Gillibrand, could be a significant win for crypto companies because of its relatively lax provisions if it does eventually pass. It’d spare the bulk of the industry from falling under the heavier-handed purview of the Securities and Exchange Commission (SEC), instead categorizing cryptocurrencies as commodities to be regulated by the Commodity Futures Trading Commission (CFTC). We talked through some of the bill’s specific provisions on mining, DAOs, and more.

We also discussed some far more negative news coming out of the industry this week — layoffs, hiring freezes and rescinded job offers from some of the major players in crypto, including Coinbase and Gemini, founded by the Winklevoss twins of “The Social Network” film infamy. (If you’re wondering what the “Winklevi” are up to these days outside of running their crypto exchange, we have a bizarre update on that front, too).

Our guest: Andreessen Horowitz partner Sriram Krishnan

Joining us this week from a16z, which recently raised the largest crypto venture fund ever, investor Sriram Krishnan talked to us about how scaling a crypto startup is similar to building a social media company. He also shared his thoughts on why he believes VCs subsidizing early-stage companies to attract users is a smart and crucial strategy.

Chain Reaction podcast episodes come out every Thursday at 12:00 p.m. PDT. Subscribe to us on AppleSpotify or your alternative podcast platform of choice to keep up with us every week.


Proposed bipartisan US crypto bill could be ‘sigh of relief’ for the industry

All around the world, regulators are trying to address the trillion-dollar elephant in the room: the digital assets market. Because crypto is a nascent industry that currently exists largely outside of legal frameworks, it’s still in murky waters, and those in the industry — and outside of it — seemingly want clear guidelines and clarity to move forward.

A proposed crypto bill, sponsored by U.S. Senators Cynthia Lummis, Republican of Wyoming, and Kirsten Gillibrand, Democrat of New York, aims to install guide rails around the digital asset space. The 69-page, bipartisan bill is comprehensive and addresses many corners of the crypto markets.

Some of the most notable aspects in the proposal include:

“This bill tries to do everything, which may be its biggest impediment.” Christopher LaVigne, co-chair of crypto practice, Withers

  • Making crypto transactions that are $200 or less tax-free.
  • Defining guidelines for differentiating cryptocurrencies as commodities or securities (most would fall under the commodity category, according to the bill).
  • Backing stablecoins with a 1:1 monetary currency, moving toward “100% reserve, asset type and detailed disclosure requirements for all payment stablecoin issuers.”
  • Granting the U.S. Commodity Futures Trading Commission exclusive spot market jurisdiction over cryptocurrencies defined as commodities.
  • Marking the U.S. Securities and Exchange Commission and CFTC as the main watchdogs over the digital asset industry.

“The bill matters as it is a step in the right direction for legislation and definition of ‘crypto,’ what a ‘crypto asset’ is and what regulation will look like,” Nick Donarski, the founder and CTO of ORE System, told TechCrunch.

“But at the same time, the bill, like other crypto-related bills, would be more likely to be split up to garner enough support to get it passed.”

Giving power to the CFTC

“There’s a lot of color here and it’s quite exciting,” Ken Goodwin, director of regulatory and institutional affairs at Blockchain Intelligence Group, told TechCrunch. By granting the CFTC oversight of most digital assets, it’s setting a precedent and giving the agency more validation, he said.

Goodwin worked on Wall Street for over 20 years and has spent the last eight years in the blockchain space. Even with his background in both traditional finance and crypto, he said he’s surprised by the positioning of the CFTC in the proposed bill.

“I would never suspect [CFTC] actually being on the forefront of this; I thought the SEC would be the regulator for this,” Goodwin said. “Even if this bill doesn’t pass, people will look to the CFTC to provide guidance.”

NYSE operator’s crypto project Bakkt brings in $182M

The Intercontinental Exchange’s (ICE) cryptocurrency project Bakkt celebrated New Year’s Eve with the announcement of a $182.5 million equity round from a slew of notable institutional investors. ICE, the operator of several global exchanges, including the New York Stock Exchange, established Bakkt to build a trading platform that enables consumers and institutions to buy, sell, store and spend digital assets.

This is Bakkt’s first institutional funding round; it was not a token sale. Participating in the round are Horizons Ventures, Microsoft’s venture capital arm (M12), Pantera Capital, Naspers’ fintech arm (PayU), Protocol Ventures, Boston Consulting Group, CMT Digital, Eagle Seven, Galaxy Digital, Goldfinch Partners and more.

Bakkt is currently seeking regulatory approval to launch a one-day physically delivered Bitcoin futures contract along with physical warehousing. The startup initially planned for a November 2018 launch, but confirmed this morning an earlier CoinDesk report that it was delaying the launch to “early 2019” as it awaits permission from the Commodity Futures Trading Commission. Along with the funding, crypto news blog The Block Crypto also reports Bakkt has hired Balaji Devarasetty, a former vice president at Vantiv, as its head technology.

ICE’s crypto project was first announced in August and is led by chief executive officer Kelly Loeffler, ICE’s long-time chief communications and marketing officer. Bakkt quickly inked partnerships with Microsoft, which provides cloud infrastructure to the service, and Starbucks, to develop “practical, trusted and regulated applications for consumers to convert their digital assets into U.S. dollars for use at Starbucks,” Starbucks vice president of payments Maria Smith said in a statement at the time.

Many Bitcoin startups floundered in 2018, despite record amounts of venture capital invested in the industry. This was as a result of failed initial coin offerings, an inability to scale following periods of rapid growth and the falling price of Bitcoin. Still, VCs remained bullish on Bitcoin and blockchain technology in 2018, funneling a total of $2.2 billion in U.S.-based crypto projects — a nearly 4x increase year-over-year. Around the globe, investment hit a high of $4.6 billion — a more than 4x increase from last year, according to PitchBook.

“Notably, 2018 was the most active year for crypto in its brief ten-year history,” Loeffler wrote. “This was evidenced by rising investment in distributed ledger technology and digital assets, as well as by blockchain network metrics such as daily bitcoin transaction value and active addresses. Yet, these milestones tend to be overshadowed by the more narrow focus on bitcoin’s price, which has been seen by some, as a proxy for the potential of the technology.”

Today, the price of Bitcoin is hovering around $3,700 one year after a historic run valued the cryptocurrency at roughly $20,000. The crash caused many to dismiss Bitcoin and its underlying technology, while others remained committed to the tech and its potential for complete financial disruption. A project like Bakkt, created in-house at a respected financial institution with support from noteworthy businesses, is a logical bet for crypto and traditional private investors alike.

“The path to developing new markets is rarely linear: progress tends to modulate between innovation, dismissal, reinvention, and, finally, acceptance,” Loeffler added. “Each step, whether part of discovery or adversity, ultimately strengthens the product. Twenty years ago, it was controversial to suggest that commodities or bonds could trade electronically on a screen, and many steps were required for that evolution to play out.”

Winklevoss-led Gemini announces a self-regulatory group for crypto

Gemini, run by the Winklevoss twins, is one of the most Wall Street-oriented exchanges on the crypto markets. Originally envisioned as “bitcoin in a suit,” it is now leading the way in self-regulation with a new Virtual Commodity Association, a self-regulating group that aims to take the guesswork out of crypto in the future. “We […]

U.S. government files charges in $6 million My Big Coin cryptocurrency Ponzi scheme

 On Wednesday, the U.S. Commodity Futures Trading Commission (CFTC) revealed that it has filed a lawsuit against the creators of My Big Coin, an alleged cryptocurrency scam that took naive investors for $6 million. The case, filed on January 16 and unsealed today, charges Randall Crater, Mark Gillespie and My Big Coin Pay, Inc. with commodity fraud and misappropriation of funds raised for a… Read More