BitOoda Regulatory Analysis, 10/19/20: Is the U.S. finally flexing its global crypto muscles through regulatory initiatives?

CFTC Chair Heath Tarbert, when asked this week about the agency’s enforcement action against BitMEX, said “I want the U.S. to lead in digital assets. … Our desire is to create an environment where innovators in digital asset exchanges can grow up here in the United States, they can come to places like the CFTC and get a license and they can benefit from our regulatory regime. What we don’t want to see are offshore exchanges that are effectively flouting U.S. laws.”

Interestingly, Tarbert’s comments came during a conversation with CoinDesk about Ethereum and the decentralization of the global financial system, while deferring to the SEC on questions related to the eternal question of whether digital assets should be classified as securities or commodities. While we have long commented on the SEC’s ineffective approach in defining a positive regulatory path for the U.S. digital asset industry, the words and actions being taken by other financial regulators are leading us to conclude that BitMEX is the latest in what will be a quickening pace of significant regulatory initiatives to better position compliant U.S. industry participants in the global market.

· Going beyond the SEC’s typical lawsuits against unregistered security offerings, the coordinated CFTC-Department of Justice action against BitMEX was followed days later by the issuance of the DOJ’s cryptocurrency enforcement framework, which stated “The Department also has robust authority to prosecute VASPs and other entities and individuals that violate U.S. law even when they are not located inside the United States.” Various analyses of the framework by both legal experts and crypto insiders have concluded that the two actions clearly indicate the acceleration of U.S. regulatory scrutiny against foreign platforms operating in the U.S.

· While not directly comprising actions against foreign digital asset competitors, there have been several recent policies that will narrow the long-standing gaps between national- and state-level regulations, which will help rule-abiding U.S. firms operate with greater confidence and fewer bureaucratic costs and burdens. Examples include the unified regulatory regime for MSBs, and the OCC’s determination that banks across U.S. states can provide custody services for digital assets.

· The U.S. Federal Reserve has jumpstarted development of the Digital Dollar, spurred by economic competition with China, advocacy and research by the Digital Dollar Project, and growing international partnerships on CBDC development.

· Congress, while unlikely to push through digital asset legislation during this administration, continues to introduce new bills that would better define the integration and regulatory oversight of digital assets into a more coherent national-level framework.

We at BitOoda have built our regulated platform and suite of compliant product offerings based on the thesis that regulatory clarity will enable the digital asset ecosystem to develop fair and orderly market structures in which institutional players will be comfortable engaging. We stand ready to discuss how our products, strategies, and advisory services can help existing and potential new clients structure and optimize sound risk and investment profiles for their digital asset positions.

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