Though cryptocurrencies themselves are decentralized technological innovations resistant to government and regulatory control, the crypto industry as a whole must still operate within regulatory realms.
In order for the crypto industry to merge into the mainstream and achieve greater growth leading to mass adoption, crypto businesses and investable products must operate within regulatory means so that they can reach institutional investors, accredited investors, and a larger demographic as a whole.
US Government Shutdown Poses a Problem for the Crypto Industry
The current United States government shutdown is the longest shutdown in US history, as it’s now stretching into its 4th week. This is hurting the crypto industry, as the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have put key developments regarding the crypto industry on hold.
Most notable is the approval and launch of cryptocurrency products and services such as Bakkt, a Bitcoin futures platform created by the Intercontinental Exchange (parent of the New York Stock Exchange). Its launch date, originally scheduled for December 2018, was pushed back to January 24, 2019.
However, with the continued government shutdown, it appears that Bakkts launch will be delayed yet again. But despite Bakkt’s lack of government approval, the budding platform has not been deterred from building up their platform.
The company announced Monday that it has acquired certain assets of Rosenthal Collins Group (RCG), an independent futures commission merchant, to boost its efforts of regulatory approval.
Other crypto startups have been suffering from the government shutdown as well. A crypto trading platform by the name of ErisX recently raised $27.5 million from prominent investors but has yet to launch due to the government shutdown.
The platform is waiting for regulatory approval from the CFTC, so it can be a regulated futures market and clearinghouse.
“During this government shutdown, we have continued our platform development efforts. We look forward to this current impasse being resolved and re-engaging with [CFTC] staff on our DCO [derivatives clearing organization] application.”
The Long-Awaited Bitcoin ETF
Apart from new crypto platforms and exchanges waiting for approval, the long-awaited Bitcoin ETFs may be affected by the government shut down as well.
One Bitcoin ETF in particular, filed by VanEck, SolidX, and the Cboe, now face one final approval deadline by the SEC on February 27. According to existing law, if the SEC does nothing about the approval, the proposal should be automatically approved.
As stated in Title 15 of the US Code:
“A proposed rule change shall be deemed to have been approved by the [SEC] if … the [SEC] does not issue an order approving or disapproving the proposed rule change.”
However, some legal experts say an approval-by-default is unlikely to happen, because the staff left on duty will likely reject the application.
Ethan Silver, who works at law firm Lowenstein Sandler had this to say on the matter:
“I think if they were forced to deal with it, they would sooner deny it than be put in a position [where it is approved on a technicality].”
Other individuals familiar with these situations share the same view. Jake Chervinsky, a lawyer with Kobre & Kim, tweeted his thoughts on the matter and received agreement from other notable individuals:
I don't think the shutdown matters at all for the VanEck/SolidX bitcoin ETF.
The SEC still has a skeleton crew that, at minimum, can issue a one-page order approving or denying the ETF before the deadline. They won't let something this important get resolved on a technicality.
— Jake Chervinsky (@jchervinsky) January 7, 2019
US Regulators’ Approach to Crypto
In a publication on January 14 from political news outlet The Hill, a former Republican representative, George Nethercutt, ridiculed US regulators for their approach to the crypto industry.
Nethercutt previously served the US state of Washington for 10 years from 1995 and is now the founder and chairman of Nethercutt Consulting LLC and the non-profit Nethercutt Civics Foundation.
As Nethercutt is familiar with US regulators and studies US policy, he holds strong opinions about their actions which he has the expertise to back up, stating:
“While diplomats at the State Department are negotiating hard to pave the way for American innovation, U.S. regulators such as the Securities and Exchange Commission (SEC) have been slow to make pronouncements regarding cryptocurrencies. This has hampered innovation and left many American businesses in regulatory limbo, particularly with respect to whether or not their tokens are classified as securities.”
Nethercutt strongly disagrees that the SEC is targeting noncompliance among crypto-related companies using securities laws from the 1930s. He, as well as many experts, believe that the current securities law needs a complete overhaul to be applied to the emerging crypto industry.
Speaking further on the matter, Nethercutt said:
“From a legal perspective, experts have concluded that securities regulations simply do not apply to cryptocurrencies. It’s time policymakers share that approach, allowing innovation to continue to flourish.”
How long do you think the US government shutdown will last? Will an ETF be automatically approved or are experts right to think it will be denied? Let us know what you think in the comment section below.