PLUS: France trials CDBC, Grayscale's spot ETF, and more |

The biggest crypto news and ideas of the day

Oct. 19, 2021

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–Daniel Kuhn

Today’s must-reads

Top Shelf

RESERVE ASSET: Crypto tracer Chainalysis has added bitcoin to its corporate balance sheet. The $4.2 billion software company said Tuesday it purchased an undisclosed amount of BTC through NYDIG, an institutional bitcoin management firm popular on Wall Street. CEO Michael Gronager called it Chainalysis’ first crypto buy: “We will continue to pursue other digital assets as potential future investments,” he said in a statement.

BTC SURGES: Bitcoin’s price surged Tuesday to a six-month high, climbing past $63,000 as ProShares’ much-anticipated, futures-focused exchange-traded fund (ETF) began trading on the New York Stock Exchange (NYSE). The ProShares Bitcoin Strategy ETF started trading at 9:30 a.m. ET as the bell rang to open the day’s session on the New York Stock Exchange. The stock ticker is $BITO.

SPOT ETF: Grayscale Investments, the world’s largest digital currency asset manager, has filed with the U.S. Securities and Exchange Commission (SEC) to convert its Grayscale Bitcoin Trust (GBTC) into a bitcoin spot ETF. GBTC first launched in 2013 and has become the largest bitcoin investment vehicle in the world, with assets under management of close to $40 billion. It holds roughly 3.44% of all bitcoin in circulation, according to Grayscale, a CoinDesk sister company.

NOT LIBRA: Facebook’s Novi wallet is ready to launch – but it won’t be launching with the diem (formerly libra) stablecoin. Novi, Facebook’s digital wallet subsidiary, will go live in the U.S. and Guatemala in a pilot program, allowing users to start trading the Paxos dollar (USDP), the social media giant announced Tuesday. Crypto exchange Coinbase will provide custody services for the program.

CBDC BONDS: France’s central bank has executed a series of bond transactions leveraging blockchain using its own digital currency as part of a 10-month pilot. The Banque de France, along with a group of France’s largest financial market participants, executed the transactions using a system developed by U.S.-based IBM, according to a statement from securities depository Euroclear.

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What will 2022 bring? Crypto 2022 is CoinDesk’s ambitious effort to scope out what’s next. This week it's Policy Week, a week devoted to exploring the complex ways governments are interacting with the cryptocurrency ecosystem, and how policy decisions or lack thereof will affect the year ahead. Read more here.

“This is really the first significant instance where they’ve said ’listen, we’re willing to overcome our doubts in order to permit this thing to exist and I think it’s an unalloyed good sign.”

–Anderson Kill Partner Preston Byrne, on CoinDesk TV’s “First Mover.”

What others are writing...

Off-Chain Signals

Bitcoin miners overload Kazakhstan’s electricity grid, forcing rations (Protos)
Crypto billionaire Jihan Wu has lost his power over Bitcoin (Protos)
Most Top Crypto Exchanges’ Mistaken Deposit Policies are Either Unclear or Missing (The Defiant)
Bitcoin Futures ETF Surpasses Half a Billion in Volume in Under Two Hours (Blockworks)
Singapore-headquartered Atlas Mining is migrating a large supply of Bitcoin miners to the US (The Block)
Andreessen Horowitz Vets Launch $110M Crypto 'Ownership' Fund (Decrypt)
NFTs Go Mainstream in London Art Gallery's AI Exhibition (Decrypt)

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Putting the news in perspective

The Takeaway

Will the New CFTC Look Like the Old CFTC?

On Sept. 29, 2021, the U.S. Commodity Futures Trading Commission (CFTC) announced it had filed 14 complaints against various crypto trading platforms. It was the busiest day of action for the nation’s top commodities regulator and a noted departure from its usual course. Between 2015 and the end of June 2020 the watchdog had only brought 19 separate enforcement actions related to crypto businesses.

Despite that seemingly paltry number of investigations, for years many participants and observers of the crypto industry viewed the CFTC as the de facto overseer of virtual currencies. The agency of about 700, responsible for monitoring hundreds of trillions of dollars in derivatives trading, first classified bitcoin as a commodity in 2014.

In an industry where there is little positive guidance, where regulators historically seemed averse to commenting on the market, the CFTC stepped up to provide a little clarity. In late 2014, the agency affirmatively stated that digital currencies fall under the definition of a commodity and therefore its remit, in the Commodity Exchange Act (CEA). In 2018, Bloomberg called CFTC “the federal overseer of digital currencies.”

All that is largely subject to change. And indeed it already has. The agency that gave us pro-crypto regulators including Chris Giancarlo, “digital dollar” advocate Daniel Gorfine, stablecoin-defender Brian Quintenz and ETH-positive Heath Tarbert is changing hands. There are currently three out of five vacant “commissioner”-level positions that President Joe Biden intends to fill. Who he appoints will undoubtedly have a significant effect on the next growth phase in crypto.

The CFTC is already ceding ground. Earlier this year Commissioner Dawn Stump, a Republican, said that sister agency the Securities and Exchange Commission (SEC) has a large role to play in regulating crypto markets. This came after SEC Chair Gary Gensler said cryptocurrencies, by and large, were neither currencies or commodities but securities, placing them in his domain.

“There has often been a grossly inaccurate oversimplification offered which suggests [crypto assets] are either securities regulated by the Securities and Exchange Commission, or commodities regulated by the Commodity Futures Trading Commission,” Stump said in August. “Even if a digital asset is a commodity, it is not regulated by the CFTC.”

Going forward, it seems, the CFTC will limit itself to dealing with crypto derivatives – like futures and options contracts – rather than the coins themselves.

This goes a long way in reducing the tension between the CFTC and SEC, in what some commentators call a turf war between agencies with overlapping jurisdictions. Crypto presents a unique challenge for legacy frameworks: Pure cryptos disintermediate builders and stakeholders from the underlying asset. But in their beginning stages, before they’re broadly adopted or “sufficiently decentralized,” they more often resemble investment contracts.

Then there’s the question of who is at the center of a smart contract; Gensler wants coders to take ownership of their code.

Stump and Gensler’s statements also seem to reduce the importance of the supposed continuum between securities and commodities. For years, developers have operated under the understanding that a crypto, issued by a team, could eventually “morph” into a commodity that belongs to the world. That’s what happened with Ethereum’s native currency, ETH, which both SEC and CFTC officials stated point blank was a security during the initial coin offering (ICO).

Giancarlo advocated a Hippocratic, “do no harm” approach towards crypto. Before taking over as chair, he laid his views on the line, stating that blockchains could “revolutionize the world of finance.” He wanted the agency, founded in 1974 to monitor agricultural products, to become a “21st century regulator.” In 2017, he launched LabCFTC, an internal unit to study digital assets, led by Daniel Gorfine.

Investigations were limited to pretty clear, identifiable, fraudulent schemes; businesses that failed to register with the CFTC; illegal off-exchange transactions; gatekeepers and price manipulators.

In 2018, Giancarlo did the unthinkable and approved bitcoin futures trading. More specifically, he allowed CME Group and Cboe Global Markets to “self-certify” these products. In 2019, then-Chairman Heath Tarbert declared that ETH is a commodity. A year later ErisX, a cryptocurrency derivatives platform, launched the first ether futures contract.

“Reasonable regulation that is carefully tailored to solve for identifiable regulatory risks is helpful in advancing mainstream adoption of new technologies and innovations. It is important, however, to strike an appropriate balance and not prematurely box-in innovation that is still in its early innings of development,” Gorfine told CoinDesk over email.

The SEC’s historically limited role in the crypto industry was positive. It took a back seat, and innovators were allowed to innovate. They oversaw specific institutions, in the same way that states oversee applications of crypto being used as money transmitters, but left the market broadly in the hands of the CFTC. And actors, from BitMEX to CabbageTech Corp., were still brought to justice when they broke the rules.

There are still ways for the CFTC to ensure its greater role in the market. Last year, former U.S. Rep. Mike Conaway proposed the “Digital Commodity Exchange Act” that would create a path for crypto exchanges to be regulated by commodities regulators. The bill died, but Rep. Tom Emmer (R-Minn.) is still talking it up.

Then, there’s the possibility that certain cryptos would qualify for a “de minimis” exception, making them more like foreign currencies.

President Biden’s pick to head up the CFTC is Rostin Behnam, who currently serves as acting chair; law professor Kristin Johnson and government watchdog Christy Goldsmith Romero are likely to be named commissioners. All have experience dealing with crypto and would make fine watchdogs, according to Gorfine.

In 2018, Behnam even noted how digital currencies could become integrated in “smaller economies.” “These currencies will be outside traditional monetary intermediaries, like government, banks, investors, ministries or international organizations,” he said.

That was then, this is now. It’s unclear how the CFTC of tomorrow will treat the crypto markets. But if comments from the White House, SEC and U.S. Treasury Dept. are any indication, enforcement will pick up and the “do no harm” approach will likely be minimized. But the CFTC’s place in crypto history is still being felt.

Yesterday, the SEC finally allowed a bitcoin futures-focused exchange-traded fund to go to market. I asked Giancarlo about it:

“The SEC’s proposed greenlighting this week of ETFs on bitcoin futures rather than on the spot bitcoin markets suggests lingering hesitancy at the SEC about the stability and health of the spot market.

“It is also a statement of confidence in the quality and effectiveness of the CFTC’s regulation of the bitcoin futures markets, which we greenlighted in 2017 under my administration.

“Yet, our 2017 decision not to block the launch of bitcoin futures faced extensive criticism from both Wall Street and the Washington and international regulatory communities.

“It is remarkable how something so controversial just four years ago is taken as the right and safe course today. It seems that by braving political risk back in 2017, the CFTC provided regulatory certainty essential for the rapid institutionalization of the crypto industry.”

So will the new CFTC look like the old?

–D.K.