The news just in: The SEC has announced that the latest bitcoin ETF filings by Blackrock and Fidelity have been deemed "inadequate" due to their being applications not being "sufficiently clear and comprehensive."
This has dashed the hopes of many in the crypto community who have looked to a possible spot ETF approval to catapult the market back into bull territory. Instead, the news has been just another of several recent blows dealt to the crypto market by the SEC.
SEC making headlines for all the wrong reasons
This latest development comes just weeks after the SEC launched lawsuits against some of the biggest entities in the industry, including Coinbase and Binance US, which sent shockwaves across the sector and put everyone on notice of their intentions to aggressively insert themselves into the legal fabric of the space.
The lawsuits, spearheaded by SEC chair Gensler, were initiated in large part due to his perception that the majority of cryptocurrencies such as Cardano, Solana, Algorand, Cosmos, Polygon, are unregistered securities. This means that, according to the SEC, these major exchanges never had the authority to offer them to investors in the first place.
Many have expressed outrage over the SEC's actions, and in particular, Gensler, who has previously openly promoted Algorand as a "promising" project and has been widely quoted stating that 75% of cryptocurrencies are "cash cryptos" or "like commodities" during his MIT lecture series back in 2018.
But the reality is that no one should be surprised that the person who once called blockchain a “change catalyst” and was held in high regard by many across the digital assets space has changed his tune so dramatically. The many reasons for this are beyond the scope of this article, but for starters:
➡ The urgent need for regulatory clarity (of a bullish nature) clouded people's judgement of what we all know to be true: individuals are often corrupted by institutions to the point that their actions and behaviours bear little resemblance to their previous positions. Let us also not forget that this is the same SEC that oversaw the demise of several of the largest investment banking firms under its regulatory care in 2008 and disregarded the warning signs that could have alerted it to Bernard Madoff’s $50 billion Ponzi scheme. Gensler's cosying up to Sam Bankman-Fried before the collapse of FTX fits this MO.
➡ Gensler is an ex-Goldman man, and history shows that the revolving door between the large banks and the legislature & regulators will always act to preserve their interests. Though Gensler has in the past touted blockchain tech as "coming for Wallstreet", rocking the Wall Street boat isn't an option.
➡ With bitcoin (and an army of imitator coins and stablecoins) already taking on key characteristics of money, "crypto" is also increasingly viewed as competition to the dollar. Unless you've been living under a rock, it's impossible not to be aware that the US government is taking the threat to US dollar hegemony very seriously indeed, largely due to the new BRICS currency in the works that could lead to a drop in global demand for the US dollar. This would have huge macro implications for the US and global economies.
Gensler himself is feeling the heat despite hardline stance
At the same time, allegations of corruption have served to further undermine Gensler's position at the helm of SEC. For example, a pair of House Republicans recently introduced a bill to remove him from his post via the 'SEC Stabilization Act' that would ostensibly seek to restructure the SEC. According to its proponents, the bill would "restructure the commission to redistribute power from the chair to other commissioners, add a sixth commissioner to the body, and create and executive director position to oversee day-to-day operations" as part of efforts to "ensure that the SEC’s priorities are with the investors they are charged to protect and not the whims of its reckless Chair."
Moreover, the crypto advocacy group, the Blockchain Association, has stated that Gensler has a legal obligation to step back from digital assets due to his failure to "create rules and guidance that allow investors, entrepreneurs, and the public to know whether the securities laws apply to their products or services.” These developments show that Gensler has effectively painted himself into a corner with his recent actions and he is now sliding closer to a vote of no confidence.
As the US flounders, other jurisdictions take decisive action
It would be a mistake to think that others are duplicating the regulatory chaos seen in the US. On the contrary, several jurisdictions in disparate regions are pressing ahead with providing the industry with decisive regulatory clarity it needs.
In the UK, for example, a law that would subject cryptocurrencies to the same regulations as traditional financial assets is all but ready for final approval by the UK government. The 'Financial Services and Markets Bill' is currently seeking royal assent, after being approved by the House of Lords on June 19 and aims to "develop official regulations for cryptocurrency businesses." The bill's main components include a new legal structure for stablecoins, protections against potential consumer fraud and financial loss in the cryptocurrency market, and a framework to encourage innovation in the crypto industry with rules for creating services.
Similarly, the Monetary Authority of Singapore (MAS) and the Financial Services Authority of Japan (FSA) established a collaboration for the combined regulation and pilot testing of cryptocurrency projects in accordance with the latter's "Project Guardian" program on June 26. Participation in the FSA at this phase will be restricted to observers only.
The failures or perceived failures of the SEC in the past do not necessarily dictate the future of crypto regulation in the US. Should the efforts to 'reform' the SEC's operations be implemented, it would go a long way to allay concerns around its stewardship of the industry and hopefully result in tangible refinements to strategies and policies directing crypto ecosystems. But it's now become impossible to look past Gensler, and none of these gains seem likely to be secured should he stay on as chair.
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