Crypto regulation in the world: weekly digest #78
The Bitcoin ETF Approval
The U.S. Securities and Exchange Commission (SEC) approved the first-ever spot bitcoin exchange-traded funds (ETFs) on Wednesday, January 10, 2024. This approval is considered a significant milestone for the cryptocurrency market, as it allows investors to gain exposure to bitcoin without directly holding it.
It is notable, that just before the ETF approval, the official «X» account of the SEC was compromised, resulting in the publication of an unauthorized post about the status of Bitcoin ETFs. The post claimed that the SEC had approved Bitcoin ETFs, which was later denied by SEC Chair Gary Gensler. The compromise was not due to any breach of SEC's systems, but rather due to an unidentified individual obtaining control over a phone number associated with the SEC's official Twitter account. The SEC is investigating the incident, but it is already known that the account did not have two-factor authentication enabled at the time of the hack, which could have added an extra layer of security.
The approval of these ETFs is expected to bring major inflows of capital into the market, with some analysts predicting inflows of $50 billion to $100 billion this year. The ETFs began trading on Thursday, January 11, and saw significant trading volumes, with $4.6 billion worth of shares traded on the first day.
However, following the widely expected approval, investors rotated into ether and out of bitcoin, causing bitcoin's price to slightly lower. On Tuesday, January 11, the price of bitcoin dropped 5.79% to $43,830.28, giving back gains from earlier this week and pulling most of the gains back. The price of bitcoin continued to fluctuate in the following days, with some analysts predicting a range between $42,000 and $100,000 during 2024.
Anyway, the approval of the ETFs is seen as a game-changer for bitcoin and a significant step in the institutionalization of the cryptocurrency as an asset class. However, SEC Chairman Gary Gensler has cautioned that the underlying asset, bitcoin, is highly speculative and volatile.
It is likely that the next step in this battle against SEC and other U.S. regulators will be an approval of the spot Ethereum ETF. The spot ETH-ETF is likely to be approved by May 23, 2024. The SEC has pushed back its decision on several Ethereum ETFs, with the final date for a potential approval arriving in late May. The SEC has stated the need for an extended period to evaluate the proposed rule change, pushing the new deadline Grayscale to January 25. The next Ethereum ETF deadlines are for Ark Invest and Invesco & Galaxy. After the approval of the BTC-ETF the crypto community remains very optimistic about the future of spot Ethereum ETFs.
The CFTC recommendations on DeFi
The Commodity Futures Trading Commission's (CFTC) Technology Advisory Committee (TAC) has released a report on decentralized finance that provides a foundational understanding of the sector and offers several recommendations for policymakers. The report aims to inform ongoing policy debates in the U.S. Congress, state legislatures, and regulators, including the CFTC. Key points from the report include:
Spectrum of Decentralization: The report suggests a model to measure the degree of decentralization in DeFi, identifying both functional and technology dimensions.
Regulatory Perimeter: Policymakers should study the regulatory perimeter and ways in which it should be expanded to address risks.
Risk Identification, Assessment, and Prioritization: The report emphasizes the importance of assessing risks posed by asymmetric information and conflicts of interest, as well as operational risks.
International Peer Jurisdictions: The report recommends evaluating international peer jurisdictions' regulation to inform U.S. policymaking.
Collaboration with DeFi Builders: Policymakers should work with DeFi builders to better understand the technical and regulatory aspects of the sector.
Mapping the Sector: Regulators should map the DeFi sector to identify gaps in regulation and determine whether frameworks should be expanded.
The TAC report is considered a major step forward for policymaking on DeFi in the USA, as it provides a detailed and technical discussion on the opportunities and challenges associated with the sector. However, some critics argue that the recommendations do not have the force of law. In any case, the recommendations will bring more certainty to the regulation of cryptocurrencies in the United States.
News from other countries:
South Korea maintains a strict stance against crypto ETFs, despite the recent approval of spot Bitcoin ETFs in the United States. The country's Financial Services Commission (FSC) has reiterated its position, citing the need to stabilize the financial market and protect investors as the primary reasons for the ban. South Korea's Capital Markets Act currently does not recognize cryptocurrencies as financial assets, and it restricts financial institutions from investing in crypto.
From the other side, the Hong Kong Securities and Futures Commission and Hong Kong Monetary Authority issued a joint statement, indicating that they are prepared to accept applications for the authorization of funds with exposure to virtual asset spot ETFs. Approval is expected to be given in the coming months.
Venezuela has decided to stop its Petro cryptocurrency, which was launched six years ago by President Nicolás Maduro to circumvent US sanctions. The Petro was initially presented as a cryptocurrency backed by the country's oil and other reserves, but it was not widely accepted and was embroiled in a graft scandal. Its use remained limited, and it was not possible to pay traffic fines with the cryptocurrency. The government has announced that all remaining petros will be converted to bolivars, the local currency, and the cryptocurrency will be discontinued.
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