BitOoda Regulatory & Geopolitical Analysis, 6/22/2020: The changing face of U.S. digital asset regulatory leadership
SEC Chair Jay Clayton has been nominated to become the next U.S. Attorney for the Southern District of NY. Although political forces may or may not allow the nomination to be approved, his potential departure from SEC naturally caused us to consider how U.S. regulatory leadership for digital assets could change moving forward. How might the regulatory landscape look if the next SEC Chair is more closely aligned with CFTC leadership? Who is positioned to step up at the national level and drive the discussion forward? And how might U.S. policy evolve on difficult questions such as the approval of a bitcoin ETF?
Since Clayton became Chair in mid-2017, the SEC has taken a conservative — though not hostile — approach to digital asset regulation; Clayton defined it last year as “measured.” We don’t disagree with that characterization, but we also describe it as a “regulation by enforcement” approach that contrasts with the CFTC’s principles-based policies. The SEC has generally focused on enforcement against unregistered ICOs and companies making false claims, and has rejected a series of bitcoin ETF proposals. While Clayton has broadly described digital assets as having the potential for positive economic impact and claimed to foster innovation through initiatives such as the creation of FinHub, it seems clear to us that the agency’s mandate for investor protection exceeded its desire to responsibly promote the U.S. digital asset market.
Where would Clayton’s departure leave us in terms of digital asset regulatory leadership? We see a growing number and diversity of perspectives entering the national dialogue:
· CFTC Chair Heath Tarbert has continued his predecessor’s support for digital asset regulatory advancement through his advocacy for a principles-based approach that gives industry participants space to innovate within current legislative and regulatory boundaries.
· Tarbert’s predecessor, “Crypto Dad” Chris Giancarlo, has continued his support for digital assets in his new capacity as leader of the non-profit Digital Dollar Project, and his increasingly active voice on the country’s approach to issues such as the application of securities law to cryptocurrencies.
· On the other side of the equation, “Crypto Mom” Hester Peirce has been nominated to serve a second term as SEC Commissioner, where she has proactively advocated for more forward-looking digital asset regulation, including proposing a safe harbor period for new token offerings.
· Acting OCC Comptroller Brian Brooks is quickly becoming one of the administration’s most active proponents incorporating digital assets by modernizing the country’s banking regulations.
· U.S. Federal Reserve Chair Jerome Powell and Fed Staff members are not as bullish on the integration of digital assets into the country’s mainstream economy, but their increasing engagement could enable the continued advancement of the Digital Dollar.
· Lastly, U.S. Congress — spurred by the CBDC discussion related to COVID-19 relief — continues to debate numerous legislative proposals that (if approved) could provide a more coherent national framework that enables executive agencies to overcome the existing disjointed system of overlapping and ambiguous regulatory jurisdictions.
Among key issues we will be closely monitoring as the leadership landscape evolves are:
· Potential approval of a bitcoin ETF: while Clayton’s position on crypto ETFs was unwaveringly negative, investors’ appetite for SEC-regulated bitcoin investment vehicles continues to grow and companies like Wilshire Phoenix — which just filed to launch a new Bitcoin Commodity Trust — will continue to push for the advancement of mainstream investment instruments.
· Clearer principles-based guidelines on the classification of different digital assets: better alignment by the SEC and CFTC on crypto classification guidelines would improve the market’s ability to assess how securities and commodities laws apply.
· National strategy for the economic integration of digital assets: the involvement of the Fed and OCC increases the momentum behind the integration of digital assets into the country’s mainstream economic landscape.
· Modernized legislative framework: Congress eventually (though not before the next election) will pass legislation that hopefully will provide clarity on the country’s overall digital asset governance.
We will be interested to see how the political games play out in Washington DC over the next few weeks and whether a potential new SEC Chair will have the opportunity to join the fast-moving discussion on U.S. digital asset regulation.