Overview of the Week’s Developments
It was an unexpectedly action-packed week on the regulatory front! Because nothing in crypto is ever easy or consistent — we saw a mix of positive and negative developments, although as we have noted in previous BitOoda writeups, we welcome any activity that helps better define the regulatory sphere.
Here’s our summary and bottom-line thoughts on key developments from the past week:
- SEC Commissioner Hester Peirce delivered a pointed speech called “How We Howey” on the regulator’s approach to governing digital assets. Some notable statements included “It is not the SEC’s overzealous action that has stifled the crypto industry, but its unwillingness to take meaningful action at all.” “I was very wrong, not about whether the SEC would stifle the industry’s growth — it has — but in how it would do it.” “It is … our duty as a regulator to provide the public with clear guidance as to how people can comply with our law. We have not yet fulfilled this duty.” “Our silence is likely to simply push this innovation and any attendant economic growth into other jurisdictions that have done their work and provided clear guidelines for the market participants to follow.”
This is why Commissioner Peirce has earned the nickname “Crypto Mom.” In this speech, she is echoing many of the points that we and many others in the space have made about the negative impact of the U.S. government’s slow regulatory approach (see BitOoda’s whitepaper that echoes Peirce’s point about loss of U.S. economic advantage to more pro-crypto countries). Her willingness to make these points so directly and publicly gives us hope that at least one voice inside the SEC is on the same page with industry leaders like us, and that her views on changing the SEC’s approach have the potential to effect positive change at the Commission.
- FinCEN published new guidance on the rules regarding how companies, individuals, and platforms may qualify as money transmitters under the Bank Secrecy Act (BSA), which requires adherence to federal AML requirements among other obligations. Interestingly, FinCEN included decentralized apps (dapps) and peer-to-peer (P2P) trading platforms on the list of potential money transmitters, but excluded software wallet providers, multi-sig providers, decentralized exchanges, and other non-custodial services. While FinCEN notes that this is a summary of existing guidance rather than new regulation, this type of interpretative clarity is meaningful and will affect market behavior by adding yet another set of factors that crypto firms need to consider when developing new tokens, platforms, and services. Reading the tea leaves a bit more boldly, FinCEN’s issuance will put some firms in a “pick your poison” situation in which they are faced with multiple potential paths (SEC, CFTC, FinCEN) and need to choose a set of regulatory applications and approvals to pursue. FinCEN has conducted AML-related enforcement actions against crypto firms since 2015 (Ripple, BTC-e, and Bitcoins Inc.) and we expect this guidance to put on notice firms looking to circumvent SEC and CFTC’s jurisdictions.
- The CFTC signaled its willingness to approve an ethereum futures contract, opening up the ether market to broader institutional investment and matching the exiting bitcoin futures market that the CFTC already approved in 2017. CFTC emphasized that it cannot issue broad opinions on what it will and won’t approve, and will look at the merits of any application it may receive. Nonetheless, this is obviously a significant proclamation following the agency’s solicitation last year of public views on ether, and represents an extremely positive move to not only solidify and clarify its jurisdiction over a cryptocurrency that SEC has declared a non-security, but also to proactively advance crypto adoption within the U.S. markets.
- The FTC sued a Texas-based startup for misusing company funds in order to buy bitcoin. While this does not necessarily signal that the FTC is interested in inserting itself in the already-excessive group of U.S. federal agencies trying to carve out its slice of the crypto regulatory pie, it nonetheless represents another angle for crypto consumers to consider when navigating the maze of rules and laws that apply to digital assets.
- The U.S. House of Representatives’ Financial Services Committee (FSC) was busy this week. It launched a new FinTech Task Force, staffed by crypto-friendly representatives including Warren Davidson and Tom Emmet. The group plans to look, among other issues, at the legal and regulatory framework and infrastructure for payments and data privacy. The FSC also heard from Representative Brad Sherman, who called for a bill to ban cryptocurrencies during an FSC hearing on Thursday. These dueling efforts within the same congressional committee reflect the continued struggles within Congress to define a consistent and forward-moving approach to working with regulators to shape the country’s crypto policy.