Appearing on CNBC’s “Squawk Box”, SEC Chairman Jay Clayton addresses what appears to be resistance to creating a clear regulatory framework for cryptocurrencies. Such a framework would help legitimize Bitcoin and the numerous altcoins that are populating an open and global blockchain-based digital economy.
To date, the Commission has rejected a number of Bitcoin ETF proposals by several leaders in the crypto space including VanEck, Gemini and Bitwise, with critics accusing the SEC of dragging its feet and causing talent to flee the US in search of a more crypto-friendly environment. Clayton was specifically asked about approving an exchange-traded fund (ETF) comprised of a bundle of cryptocurrencies.
“We’re engaging on this but there are a couple of things about it that we need to feel comfortable with. The first is custody. Custody is a long-standing requirement in our markets. If you say you have something, you really have it.”
Applying long-standing market requirements to new markets like cryptocurrencies raises the question of how the SEC continues to approach the revolutionary digital assets that are fundamentally different from the traditional assets the SEC routinely regulates. Are cryptocurrencies being treated like stocks and bonds?
Clayton says they are not, while also upholding crypto exchanges and markets to the same standards that apply to traditional markets.
“When we get into the retail space, custody is important. The other thing that is important is if you look at the trading of these cryptocurrencies, and our retail investors look at this and say, ‘That looks like a stock or a bond that trades.’ We have sophisticated rules and surveillance to ensure that people are not manipulating the stock market. Those cryptocurrency markets, by and large, do not have that. And we’re working hard to see if we can get there. But I’m not going to just flip a switch and say this is just like stocks and bonds because it’s not.”
Clear regulations are expected to give a signal to financial institutions and their investors that they can enter the space without ongoing reservations, fears or concerns. With approval from federal regulators, Wall Street could theoretically enter the space and develop more financial products, such as exchange-traded funds, driving more interest, more expansion, more liquidity, more adoption.
Critics also argue that the financialization of Bitcoin could be detrimental to the markets and that ETFs, for example, are not needed to make cryptocurrencies widespread. Initiatives from tech giants such as Facebook and Apple, with billions of users and consumers already on board, are in a position to spark mainstream adoption on their own, without waiting on Wall Street or the SEC to develop and regulate new instruments.
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