SEC Chairman Jay Clayton has realized something the crypto community has been trying to tell him for years – cryptocurrencies aren’t stocks. In an interview with CNBC this morning, Clayton offered the securities regulator’s latest take on bitcoin, and it seems they appear no closer to providing any clarity for traders and blockchain startups today than they were a year ago. This is a setback for tech innovation in the U.S. because the more time the SEC takes, the more entrepreneurs are going to decide to pack their bags and take their successful projects elsewhere.
Clayton in the interview described how individual investors would look at bitcoin and be fooled into thinking that it trades similarly to a stock or bond even though it doesn’t. He added:
“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.”
The issues that make the SEC uncomfortable about a bitcoin ETF include:
- Custody (incidentally, Fidelity Digital Asset Services provides crypto custody)
- Lack of rules
SEC Chairman Jay Clayton on #Crypto:
“We have sophisticated rules & surveillance to ensure that people are not manipulating the stock market. Those cryptocurrency markets by and large do not have that.” pic.twitter.com/1iGryAiSob
— Squawk Box (@SquawkCNBC) June 6, 2019
There are a couple of different ways to dissect this. First, it’s the job of regulators and lawmakers to create a framework by which cryptocurrencies can trade and companies can raise funds, etc. So when he says that the guidelines are missing in crypto, this is where he should look in the mirror. Clayton seems to know this, adding:
“And we’re working hard to see if we can get there. But I’m not just going to flip a switch and say ‘this is just like stocks and bonds.’
The thing is, nobody is asking him to do that. Just ask messaging company Kik, which is about to go to court with the SEC to prove that its cryptocurrency Kin is not a security. If he’s referring to the yet-to-be-approved bitcoin ETF, on which the SEC continues to kick the can, Clayton is sticking his head in the sand and denying the inevitable.
As far as manipulation, despite securities laws, the stock market is riddled with it. It wasn’t that long ago that the CFTC sacked hefty fines on major financial institutions including UBS and Deutsche Bank for “spoofing techniques” and manipulation in the U.S. commodities markets. Oh, the hypocrisy.
HEY SEC, REGULATED BAKKT IS JUST AROUND THE CORNER
Meanwhile, it appears he forgot to mention the fact that ICE-backed Bakkt, a regulated bitcoin futures exchange. Bakkt CEO Kelly Loeffler stated last month:
“As detailed in the ICE Futures U.S. filing with the CFTC today, bitcoin futures will be listed on a federally regulated futures exchange in the coming months.”
Bitcoin exchanges that give retail investors the opportunity to trade cryptocurrencies in the spot market such as Coinbase and Gemini work hand in hand with regulators to remain compliant.
So bemoan the rise of an emerging asset class that you must learn how to regulate all you want. It is uncomfortable and it will require an open mind and yes, some risk-taking. But if the Buttonwood Agreement that set in motion the guidelines for trading stocks on the NYSE more than 200 years ago were depending on the pace of today’s regulators, traders would still be meeting under that buttonwood tree.