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What are the 7 Key Takeaways from Facebook's Libra Hearings?

The debate on Facebook’s Libra continues with the hearing with the Senate Banking Committee (“Senate hearing”) on 16 July and the United States House Committee of Financial Services (“House hearing”) on 17 July. Here are the 7 key takeaways from the two hearings.

Libra is centralized

Regulators believed that the composition of the Libra Association has made Libra “highly centralized”. In the House hearing, New York Congresswoman Alexandria Ocasio-Cortez (AOC) questioned if the members of the Libra Association is democratically elected. David Marcus, the Head of Calibra said that the members are not elected but was governed by membership standards. When AOC realized the investment of $10 million as the criteria of founding members, she concluded Libra as “a currency controlled by an undemocratically-selected coalition of largely massive corporations.”

With regards to the eligibility of using Calibra and Libra, Marcus responded to Representative Sean Duffy’s question that anyone can use Calibra and Libra in jurisdictions where Facebook operates after they performed KYC procedures. However, when Marcus was asked by North Carolina Representative Alma Adams on whether any user can become a node on Libra blockchain, he denied and said that only large corporations with blockchain technology or finance backgrounds can become a member of the Libra association and a node on the Libra blockchain.

With the lack of decentralization, Representative Warren Davidson slammed Libra in the House hearing suggesting Libra falls in the same category as a run of the million sh*tcoins.

Can Facebook protect data privacy with its notorious track record?

In the Senate hearing, Ohio U.S. Sen. Sherrod Brown commenced with the poor history of Facebook in privacy protection, saying “Facebook has demonstrated scandal after scandal that it doesn’t deserve our trust.” Such skepticism continued in the House hearing, where committee chair Rep. Maxine Waters condemned Facebook with a “demonstrated pattern of failing to keep consumer data private on a scale similar to Equifax.” For example, Facebook purportedly influenced the 2016 U.S. Presidential elections by allowing malicious Russian state actors to purchase and target ads.

The discussion switched to data portability. Sen. Warner questioned if Facebook allows data portability in wallets.

“If a Facebook user wishes to use a wallet other than Calibra, will you make it easy to allow the export of other data?”

Marcus answered that Facebook will facilitate data export for wallets other than Calibra, and he hedged the same commitment for Whatsapp and Messenger. He added that the Calibra network will separate social and financial data and they will impose the highest privacy standard to earn people’s trust Sen. Warren expressed her concern on Facebook’s ability to monetize personal data among platforms. Senator McSally followed up on this and stressed that there are no grounds for committees to trust Facebook with “the track record of failing and violating and deceiving in the past”.

In the Senate hearing, Senator Robert Menendez asked if Facebook will inform users in 48 hours in cases of the data breach. Marcus replaced “48 hours” with “a reasonable length of time”.

Why Switzerland?

Both hearings questioned the registration venue for Libra Corporation. In the Senate hearing, committee chair Mike Crapo wondered why Libra Corporation is registered in Switzerland but not the U.S. Marcus replied that Libra Corporation will also register with U.S regulators in the future.

The committees are clearly not satisfied with what Marcus said in the Senate hearing. Representative Patrick McHenry raised similar concerns and Marcus explained that Switzerland is an “international place” to conduct businesses. He further addressed Representative Josh Gottheimer’s concern that the choice of Switzerland has nothing to do with evading U.S. regulations.

Several lawmakers also worried about the threat of Facebook’s Libra towards the dominance of USD. Marcus stated that the reserve is 50% backed by USD, with the Euro, the British Pound, and the Japanese Yen included as the collateral.

How about KYC and AML?

In the Senate hearing, Senator Cortez Mastro, former District Attorney of Nevada seek Marcus’s commitment to the compliance of AML and sanction laws. Marcus highlighted that they are working to comply with FinCEN regulation.

In the House hearing, Rep. David Scott explicitly expressed his concern on how Facebook Libra complies with KYC, AML and ensures the safety of the existing financial system. Marcus replied that they will launch AML guidelines to satisfy the needs of AML, KYC, and counter-terrorist financing. With regards to potential illegal activities on Libra blockchain, Marcus believed that this can be improved by system design and proper KYC controls to ensure on and off-ramps are properly regulated.

Can Facebook protect consumer’s funds on Libra?

Senator Tester questioned Libra’s ability to protect consumers against loss of funds or fraudulent purchases, along the line of credit cards or the FDIC.

While Marcus claimed they will try their best to resolve those issues as soon as possible, Tester stressed that proper solutions must be in place before Libra goes live.

Representative Carolyn Maloney asked Marcus if he would at least promise to conduct a pilot test before the full launch of Libra. She assumed the pilot test would involve less than 1 million users and overseen by the Federal Reserve and the Securities and Exchange Commission (SEC). Marcus did not provide a clear response and merely stated that they will work closely with regulators.

Is Libra public good?

AOC asked Marcus if Libra is a public good. Marcus claimed that “sovereign currency should remain sovereign” and said he is not in the position to decide whether Libra is a public good.

Praise for Bitcoin?

House minority leader Kevin McCarthy told CNBC that unlike Trump, he likes Bitcoin and the security of blockchain technology. He believed that lawmakers are skeptical about Facebook’s Libra because Libra is centralized, which can threaten the safety of the financial system. Lawmakers are not hostile towards cryptocurrency, he added.

Final words..

We believe there are some questions not properly answered in both the Senate and House hearings, such as the main reason for Facebook launching Libra. Going forward, the centralization of the Libra Association and the notorious history of privacy breach will be the main obstacles for Facebook Libra to go public.

Exclusive: Gerard Dache, on the Two Contradictions of Facebook Libra

Exclusive interview with Gerard Dache: Part 2

In part 2 of the interview, Gerard walked us through some of the recommended bills to the government in fostering blockchain innovation, such as the “Blockchain Promotion Act”. He then shared his views on the nature of Bitcoin and two contradictions of Facebook’s Libra.

In Section 2 “Working group to recommend the definition of blockchain technology” of the Blockchain Promotion Act, as some academics have defined “blockchain technology” in their papers, is this bill trying to show that the working groups are more authoritative than the academic scholars? If the definition set is different from those in academics, will those academic papers and whitepapers lose their authority?

A great question! Firstly, we have 50 different working groups, and I am not involved in all of the output of all of them. We tend to think in terms of continuing to bring clarity, we are not in competition with the politicians or the academics and we are not a political organization. We want to bring the government and businesses together.

In my opinion, we are going to need a whole new asset class. These technologies are fundamentally different than securities or utilities or a lot of these things we seem to patent, they may have attributes of them.

We have never seen a technology like this before. We are going to need new regulatory tools to deal with it.

What’s your observation on the role of cryptocurrencies in the financial industry?

When cryptocurrencies first came out, the biggest enemy of cryptos was the financial services industry. Everybody in blockchain started moving to all these different use cases, such as supply chain, identity, healthcare, and others; blockchain will be helpful but it will be a slow path. In the area of financial services, there was the most animosity towards cryptocurrencies. The pace of blockchain development will be the quickest because the banks and financial institutions realize if they don’t leverage blockchain in their operations, they’re going to be left behind and will be out of existence.

The minute that banks start moving into this space, they will then drag the government. All the Facebook hearings, Libra hearings and other things are happening because the financial services industry is moving much faster than any other industry, and we see incremental innovations there. In the area of banking and financial services, that’s where the earthquakes will rock the foundations of our finances. That’s also where the laws must go first.

The US SEC claimed Bitcoin is not a security; the IRS said Bitcoin is considered property; the CFTC said Bitcoin is a commodity. How does the GBA or your personal view the nature of Bitcoin? Should Bitcoin be regulated?

There is no government agency that can come in and make an impact on Bitcoin. There isn’t any way for a government to regulate or to change the supply or to change the price of cryptocurrencies. The government can require its citizens to report it, but it is literally impossible for them to be regulated.

In your opinion, do you think Bitcoin is a security, commodity, property, or none of the above?

I believe it’s none of the above – Bitcoin has the property of the above mentioned and it bears similar characteristics as gold. However, for high dollar transactions, it can also be a payment system. GBA is not a lobbyist organization, so we’re not trying to push for legislation. In my opinion, we need a new asset class and new rules.

Let’s talk a bit about the future of Facebook’s Libra. David Marcus mentioned in the hearing that Facebook Libra is a payment instrument. What are the regulations required for Libra to stay compliant?

Facebook was hit with two completely conflicting issues; they said the reason that they are building this is that they want to help bank the unbanked. They also said at the same time that they will be fully AML and KYC compliant. The reason why so many people are unbanked is that they don’t have an identity. How are you going to give identity, do AML/KYC and at the same time bank the unbanked?

Facebook is going to run into so many regulatory challenges that I doubt they will ever launch, and if they do, it’s not going to be anytime soon.

Do you think Libra is not a cryptocurrency because of its centralized nature?

Yes. Facebook hasn’t figured out a lot of this stuff themselves yet, so the fact that they announced when they did, caused a lot of chaos but also woke up a lot of people. They are not ready for their prime time yet. In fact, many members of the association have many questions about what it would mean when trying to run a node and when they would be compliant, and the current regulators are not ready for this.

Recently, Walmart filed a patent on digital currency. What will be the future of Bitcoin when traditional giants start launching their own digital currency like Facebook?

For Facebook’s Libra and Walmart, when they launch their own token, I believe they will become another ‘Western Union’: another centralized payment channel.

I don’t think that they can actually take on the properties of a cryptocurrency. The concept of cryptocurrencies, as a decentralized mechanism, is so antithetical to what they’re trying to do.

My prediction is that I see Bitcoin going up to about half a million dollars. The reason is that if I go to Starbucks, or McDonald’s, I don’t need 51% of all the computers in the world to validate my transaction. However, if I’m going to buy a house or a car, or if the government is going to send a transfer payment to a state, a currency as secure as Bitcoin will be needed. I believe that we’ll see networks and technologies that are much lighter, much faster like the lightning network that will be secure enough for smaller transactions. Bitcoin will become more like the cornerstone gold, and more like the reserve currency that all of these technologies are tethered to.

I believe Bitcoin has something that very few other cryptocurrencies have – which is a fully decentralized nature gaining people’s trust. I think that’s where the value is, not in the everyday payment system, but as the foundation for a whole new economy.

Do you think the future of blockchain development will be driven by permissioned blockchains instead of public blockchains?

When the internet first came out, it was hard to imagine that we would be using the internet for our banking. Then we would use the internet to swipe right or left to decide who to date. We need transitional technologies and I believe that these enterprise permissioned blockchains are very important transitional technologies. If you try to tell someone we’re going to go from where we were ten years ago, to a fully decentralized economy, people will say you’re crazy. It is going to take time for that to happen. It may take decades, but these enterprise permissioned systems, I believe, are critical to the transition to the new economy.

US SEC Rejects Bitwise Proposal to List Bitcoin ETF

The United States Securities and Exchange Commission (SEC) has rejected a proposal filed by Bitwise Asset Management to list a Bitcoin (BTC) exchange-traded fund (ETF).

On Wednesday, the US SEC finally made a decision on the Bitcoin ETF filing by Bitwise and NYSE Arca, stating that the applicants did not meet the necessary requirements pertaining to possible market manipulation and illicit activities, and thus rejected the rule change.

The Sec offered the following explanation, “The Commission is disapproving this proposed rule change because, as discussed below, NYSE Arca has not met its burden under the Exchange Act and Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be designed to prevent fraudulent and manipulative and practices.”Bitcoin ETF Unwarranted Optimism

The response from the SEC appears to be in stark contrast to Bitwise’s Managing Director and Global Head of Research, Matt Hougan’s recent display of optimism on Oct.7 when he commented, “We’re closer than we’ve ever been before to getting a Bitcoin ETF approved.”

Hougan has been vocal in his belief that perceptions of Bitcoin have radically changed and seemed convinced that the firm’s chances to land approval for a physically-held Bitcoin ETF were good. Hougan had cited the significant growth in cryptocurrencies and the role of custody in the development of Bitcoin as evidence stating, “I’d say custody has really solved our problem in crypto right now. There are a large number of regulated, insured custodians with hundreds of millions of dollars of insurance in place.”

The rejection of Bitwise’s proposal is another episode in a series of setbacks and delays from the SEC. The regulators had previously postponed making a decision on the proposal until Oct. 13 along with two other ETF proposals by VanEck Solidex and Wilshire Phoenix.

Image via Shutterstock

US SEC Reopens Rejected Bitwise BTC ETF For Review

The United States Securities and Exchange Commission (SEC) has announced that it will revisit and review its previous decision to reject Bitwise Asset Management and NYSE Arca’s filing for a Bitcoin (BTC) exchange-traded fund (ETF).

On Nov. 18, the SEC announced that the ETF filing from Bitwise Asset Management and NYSE Arca will return to review, following the October rejection for not meeting the necessary requirements.

The SEC initially rejected the Bitcoin ETF filing on the grounds that the applicants were unable to meet the necessary requirements pertaining to possible market manipulation and illicit activities in October.

However, now that the regulator has announced that it will take a second look at the proposal, any party or person may file a statement, either in support or in opposition to, the proposed action made in accordance to SEC, no later than Dec. 18, 2019.

The regulatory commission further highlighted that the order to disapprove the proposed listing of the ETF filing from Bitwise Asset Management and NYSE Arca will remain in effect pending the SEC’s review.

The major concern which has so far been cited by the SEC to evaluate crypto ETFs is whether the underlying market is resistant to market manipulation.

In its previous rejection the SEC the following explanation, “The Commission is disapproving this proposed rule change because, as discussed below, NYSE Arca has not met its burden under the Exchange Act and Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), and, in particular, the requirement that the rules of a national securities exchange be designed to prevent fraudulent and manipulative and practices.”

Image via Shutterstock

What are the Top 5 Blockchain Market Events to Watch in Q2 2020?

Looking ahead to Q2 2020, what are the top 5 blockchain market events to watch? This article provides a simple guide for you!

Bitcoin Halving

Considered as the most important market event for Bitcoin, Bitcoin halving is likely to take place in May 2020. Bitcoin halving occurs once in every 210,000 blocks produced (approximately every 4 years), which by definition, will cut the supply of Bitcoin in half and halve the Bitcoin mining rewards for miners.

In the process of mining, miners use expensive mining equipment to solve complex mathematical problems. Once the math problem is solved, the new block is created and miners get Bitcoin as rewards. The halving mechanism is integrated into the protocol by Satoshi Nakamoto. With the fixed supply of 21 million BTC, the mechanism ensures Bitcoin is a deflationary asset, which slows down the pace of BTC creation over time. Such ideology is opposite to fiat currencies, which is controlled by central banks and inflationary by nature.

Since the inception of the genesis block in 2009, 50 Bitcoins are produced every 10 minutes. Bitcoin has experienced two halvings in 2012 and 2016, which currently 12.5 BTC is being created every 10 minutes. In the anticipated Bitcoin halving in May 2020, the block reward for miners is dropped to 6.25 BTC from 12.5 BTC.

The Bitcoin halving gains much traction from the crypto community with the belief that Bitcoin price tends to increase after each halving. For the first halving that occurred in 2012, Bitcoin price rose to $1,038 in a year (compared to $12 before the halving). However, the second Bitcoin halving in 2016 was much anticipated by the crypto community, and Bitcoin price rose 288% after a year of second Bitcoin halving. We can see that the price increase after the second Bitcoin halving is less substantial than the first, and it’s likely because the expected increase in BTC price was already factored in second BTC halving. The third Bitcoin halving is set to occur in May and its price impact on Bitcoin remains uncertain amid macroeconomic uncertainty and coronavirus.

The Launch of Chinese National Blockchain?

Will China launch its nationwide blockchain-based service network (BSN) in Q2 2020? As first reported by XinHua Net, the BSN was launched by the State Information Center (SIC), China Mobile, China UnionPay and other institutions on Oct 15. Designed as an interregional public infrastructure network, BSN aims to provide a scalable and trusted network to accelerate the development of smart cities and the digital economy. Zhang Xueying, deputy head of the SIC believed that BSN can reduce the technical and economic threshold in blockchain application, which in turn helps to nurture new business models using blockchain technology.

The official announcement stated that BSN had commenced the beta testing in Oct 2019 and expected to complete by end of Mar 2020. The testing is first piloted in Hangzhou for unified digital identity, aiming to expedite the authentication process for individuals using government services. The testing is opened to over 400 enterprises and 600 developers. Prior to the coronavirus outbreak, the testing was in full swing as more than 50 public nodes had been deployed in 31 provinces and municipalities in China. Tang Sisi, deputy head of the Smart City Development Research Center of the SIC, felt confident that the commercial launch of BSN will be set in Apr 2020.

However, there has been limited updates on BSN since China’s first fatality report in mid-Jan. Despite the coronavirus pandemic, China continued to push its blockchain development. For example, China established the first provincial blockchain zone in the central province of Hunan in Mar 2020. There will be three blockchain zones to be built in Hunan, namely blockchain industrial parks in Wanbao district in Loudi, and other zones in Jingkai and Gaoxing in the city of Changsha. As there are no official updates on BSN since mid-Jan, we shall stay tuned for the result of BSN’s beta testing in Q2 2020.

Whitepaper of Digital Dollar?

J. Christopher Giancarlo, the former chairman of the U.S. Commodity and Futures Trading Commission (CFTC) released written remarks on his Digital Dollar initiative during Devos 2020. It is believed the initiative can provide a practical framework to develop a potential “FedCoin”. This is in line with the Federal Reserve’s effort to explore the possibility of launching FedCoin amid the competition from Libra and China’s potential launch of Digital Currency Electronic Payments (DCEP).

The Digital Dollar project is created by the Digital Dollar Foundation and Accenture, which recently announced its new advisory group with 22 members. With experts from the diversified background, the project aims to provide guidance to establish a U.S. Central Bank Digital Currency (CBDC). In particular, the project will identify strategies to address monetary policy effectiveness and financial stability issues when setting up the CBDC. In the advisory group, experts from anti-money laundering and privacy field will provide guidance on privacy, scalability of CBDC to handle retail, wholesale and international payments. The Digital Dollar Foundation is ambitious to release the whitepaper to outline the core propositions of a digital dollar before June 2020.

Ongoing Battle between Telegram vs U.S. SEC

Is GRAM token security? Considered as the landmark ruling on the nature of cryptocurrency token, the lawsuit between Telegram and U.S. SEC is expected to continue in Q2 2020.

The United States District Court has sided with the U.S. SEC to issue a preliminary injunction against Telegram and prohibits Gram token’s issuance on Mar 24. In the Court’s filing, the resale of Telegram’s GRAM token in the secondary public market would be an integral part of the sale of securities without a required registration statement. This falls under the economic realities under the Howey Test. According to the U.S. SEC, the sale of 2.9 billion Grams to 175 purchasers in exchange for USD 1.7 billion needs to be registered to comply with the Securities Act of 1933.

Telegram has filed a notice of appeal with the Court of Appeals for the Second Circuit immediately after the decision. While the battle between Telegram and U.S. SEC continues, the TON Community Foundation (TCF) considers contingency options like launching the network without Telegram. As the code necessary to launch TON is open-source and publicly available, TCF Founder Fedor Skuratov explained that TON can be launched after the creation of genesis block and a minimum of 13 validators.

Commercial Launch of Contour

Formerly known as Voltron, the Contour initiative is built on R3’s Corda blockchain platform and completed global trials in May 2019. Contour is established as a standalone legal entity in Jan 2020 along with the banking giants such as HSBC, ING, BNP Paribas and more. Carl Wegner, CEO of Contour, explained to Blockchain.News the transition from Voltron to Contour and how blockchain can bring significant efficiencies in streamlining the process of issuing Letters of Credit (LCs). He is interested to witness how blockchain allows banking giants to talk together with a set of rules, and this can be a game-changer in trade finance.

The Contour initiative has completed over USD 30 million worth of LCs transactions during the trial period last year, and is ready for commercial launch in Singapore in Q2 2020.

US SEC Charges “Bitcoiin2Gen” Executives with Defrauding Investors In $11.4 Million Crypto Scheme

The US SEC (Securities and Exchange Commission) has charged three individuals with defrauding investors of $11.4 million through a 2018 controversial initial coin offering (ICO) called “Bitcoiin2Gen (B2G)”, a crypto scam heavily shilled by celebrities like Steven Seagal.

According to the regulator, Kristijan Krstic, (Bitcoiin2Gen and Start Options founder), John DeMarr (company promoter), and Robin Enos violated federal securities laws when they allegedly promised investors a profit from holding the company’s cryptocurrency, Bitcoiin, which was sold in what the SEC has considered to be an unregistered initial coin offering.

The SEC revealed that Krstic, DeMarr, and Enos allegedly promised to deliver investors an Ethereum-based token (Bitcoiin2Gen) that the regulator claims never existed. The three allegedly disseminated misleading brochures among 46 investors when they promised a tradable and mineable digital token, but sold the sham for funds they never returned. The culprits generated $11.4 million through “Bitcoiin2Gen” (B2G) project and another one called “Start Options”, all of which were unregistered and fraudulent securities offerings.

DeMarr and Krstic face charges associated with violation of securities laws (misconduct and fraud in unregistered offerings). On the other hand, Enos has been charged with aiding and abetting the violations listed above.

Bitcoiin2Gen project also relied on the blessings of Steven Seagal, the famous actor of action movies including “Above the Law” and “Out for Justice.” Krstic and DeMarr touted the action movie actor as “brand ambassador” for the “Bitcoiin.” Seagal’s Twitter account, which had an estimate of 107,000 followers, posted messages about the firm and its initial coin offering in 2018. Early last year, the SEC settled with Steven Seagal over charges associated with failure to disclose that he was being paid as he promoted the cryptocurrency investment.

The commission stated that it viewed B2G as a security and it is conducting ongoing investigations into the digital coin.

Crypto Investors Beware

To protect investors, the SEC continues to issue alert warnings for bogus crypto promotion, Ponzi schemes, and community-based financial scams. There has been a significant rise in consumer complaints associated with investment fraud as criminals try to exploit economic uncertainty across the world to lure victims into investment scams. Such scams promise high returns whereby criminals target victims who are trying to bring in extra income to support their lives. Investors are advised to avoid high-pressure sales pitches that require them to get involved now or risk losing out. The regulator also continuously cautions the public to be wary of celebrity endorsements and always carry out their own research when dealing with cryptocurrencies promising unrealistic returns.

Cathie Wood’s Ark Investment Gets into Canadian Bitcoin ETFs As US SEC Delays Applications

Cathie Wood’s Ark Investment Management LLC updated its prospects. They can now invest in Canadian Bitcoin ETFs as the investment management company seeks new ways to bet on digital assets.

A new supplement filing with the US Securities and Exchange Commission (SEC) indicates that Cathie Wood’s ARK investment management company has given itself the green light to buy Canadian Bitcoin Exchange-Traded Fund (ETFs). The firm’s investment product (ARK Next Generation Internet ETF) has updated its prospectus to enable the fund to invest in Bitcoin ETFs based in Canada.

In the past, the firm’s fund (ARK Next Generation Internet ETF) could only get exposure to Bitcoin investment through a grantor trust such as the Grayscale Bitcoin Trust.

The move by Ark Investment Management firm comes amid several delays and rejections for similar products in the US by the market regulator (the US SEC), which likely prompted the firm to seek alternatives abroad.

Since Ark Investment Management filed the supplement with the SEC on Friday, September 10; As a result, its fund (the US$5.7 billion ARK Next Generation Internet ETF) now has another option to get indirect exposure to Bitcoin investment.

Besides the Grayscale Bitcoin Trust (GBTC), the fund now can invest in other pooled investment vehicles such as ETFs based in Canada.

The ARK Next Generation Internet ETF already has investment to Bitcoin exposure worth around 5.5% of the fund invested in the GBTC.

Although the Grayscale Bitcoin Trust is considered one of the easiest ways for investors to access crypto assets in the US via a fund, its structure makes it inefficient. Its value frequently detaches from that which Bitcoin holds.

Through the recent supplement filed, ARK may be seeking greater Bitcoin exposure through fewer costs, avenues with greater liquidity, and without having to endure GBTC’s premiums.

Bitcoin ETF approvals delay

The move by Ark Investment Management comes amid a long waitlist piling of at least 18 applications for Bitcoin-based Exchange Traded Fund (ETFs) filed with the US SEC.

Grayscale itself has been waiting for regulatory approval to convert its popular trust GBTC into an ETF. Other firms that have filed for listing a Bitcoin ETF in the U.S. include Fidelity, Global X, SkyBridge Capital, VanEck, Valkyrie, NYDIG, and others.

However, the Securities and Exchange Commission has yet to approve any physical Bitcoin ETF in the US, and such approval may not happen anytime soon.

Recently SEC chairman Gary Gensler signalled that he would consider a futures-based Bitcoin ETF under strict rules. Following Gensler’s remarks, several companies filed for futures-based Bitcoin ETFs with the SEC.

If even Gensler seems more comfortable with futures-based Bitcoin ETFs than physical ones, they are likely still far off to be approved.

This is due to SEC concerns. Besides the worry of fraud and volatility within the crypto landscape, the SEC is also concerned with how the demand for physical Bitcoin ETFs would impact the overall market.

US SEC Likely to Delay Bitcoin Futures ETFs Until 2022: CFRA Investment Research Firm

Cryptocurrency investors may have to wait longer for an exchange-traded fund that is directly tied to physical cryptocurrency or its futures contracts, according to Todd Rosenbluth, senior director of the ETF and mutual research company CFRS.

Speaking in an interview with CNBC’s ETF Edge on Tuesday, October 12, Rosenbluth disclosed that although a Bitcoin futures product is likely to be approved first by the SEC, the current clouded regulatory climate could cause further delays.

“We think we’re more likely to see a bitcoin futures ETF first,”

More than 18 firms are still waiting to hear whether their respective filings for Bitcoin-based ETFs will progress to the public markets.

Rosenbluth explained that the SEC could be waiting for a clearer regulatory environment that would enable all of such crypto EFT products to meet their goals and therefore approve all the products at the same time to avoid dealing with “first-movers” advantage.

“It’s possible we think it’s likely — that we’re going to see a delay of a Bitcoin futures ETF until 2022 until the regulatory environment is more clear,” Rosenbluth stated.

Meanwhile, Jan van Eck, the CEO of Van Eck Associates, was also part of the CNBC interview and revealed that that the major concern for the SEC is about the potential for discrepancies between Bitcoin and futures prices, the risk of cross-border investment, and the potential for funds to get too large and push the limits on how many contracts they can own.

Van Eck illustrated that when there is a bitcoin rally, futures strategies can underperform by as much as 20% a year. “The SEC wants to have some visibility into the underlying Bitcoin markets,” he said.

Van Eck also suggested that the SEC is still looking to gain more control over cryptocurrency trading, and currently, it is making attempts in several ways. For instance, the regulator recently stopped Coinbase to provide a lending product. Other popular trading platforms like Robinhood have already registered with the SEC and are regulated as broker-dealers.

Achieving such regulatory control could help the Bitcoin futures ETF’s chances, but it is unclear by how much, Van Eck said.

“They clearly have some control over players in the underlying bitcoin markets, so maybe that increases the chances from zero, but I have no idea what they are,” he said.

Investors Betting Big on Crypto

Bitcoin surged its value 35% in the last two weeks and even reached a high of $57,000 level on Tuesday, October 12, as investors increased their optimism about the SEC’s plans for several bitcoin ETF applications currently under its review.

However, any speculation over a possible delay could adversely affect the prices of the flagship cryptocurrency as analysts had suggested that big investors may be purchasing Bitcoins in anticipation of an ETF approval this month.

Eric Balchunas, Bloomberg senior ETF analyst, is still confident that there is a 75% chance that the SEC could approve an ETF this month.

However, other analysts, just like Ulrik K.Lykke founder of crypto/digital assets hedge fund ARK36, remain sceptical to the foreground of the approval of Bitcoin ETF:

“Historically, the expectations for investment vehicles and instruments of a more institutional grade have often ended up in a “buy the rumour, sell the news” scenario for Bitcoin; a Bitcoin ETF will have a net positive effect on the development of the space but it likely won’t result in an immediate, dramatic rise in institutional adoption of digital assets.”

Earlier this month, the SEC extended deadlines of four Bitcoin exchange-traded funds (ETFs) for 45 days, citing the requirement for additional time to decide whether to accept the 19b-4 applications.

On October 1, the regulator rescheduled approval of four Bitcoin ETFs – Global X Bitcoin Trust, Valkyrie XBTO Bitcoin Futures Fund, WisdomTree Bitcoin Trust and Kryptoin Bitcoin ETF – until November 21, December 8, December 11, and December 24, respectively.

Grayscale Files with US SEC to Convert GBTC Into Bitcoin Spot ETF

Grayscale Investments LLC, the world’s biggest digital currency asset management firm, has filed with the U.S. Securities and Exchange Commission (SEC) to convert its Grayscale Bitcoin Trust (GBTC) into a physical or spot-based Bitcoin ETF.

Michael Sonnenshein, the CEO of Grayscale, made such an announcement in an interview on Tuesday, October 19, stating that the company is “100% committed to turning GBTC into an ETF as soon as U.S. regulators allow.”

“We are of the firm belief that because the futures and the spot pricing for Bitcoin are inextricably tied, that we have the willingness to allow or clear the way for a Bitcoin futures ETF in the market, and also clear the way for a spot ETF,”

The move by Grayscale comes after the SEC approved the launch of a Bitcoin futures ETF to trade, with ProShares Bitcoin Strategy ETF beginning its trading on Tuesday.

Grayscale is aware of the conversion that would help the firm resolve persistent problems it has been facing in the past. Launching a physical Bitcoin ETF would solve the current less liquid option, Bitcoin fund (Grayscale Bitcoin Trust – GBTC).

The trading of a Bitcoin spot ETF would also address the trust’s discount as Grayscale, in many cases, has been selling Bitcoin below the net asset value. The GBTC’s price has traded below its underlying Bitcoin holdings for a prologued period because shares in the product can’t be destroyed in the same way as they are in an ETF.

Also, Grayscale Bitcoin Trust may lose its relevance as the beginning of Bitcoin futures ETF’s trading threatens to draw assets away from a product that investors have tolerated because of the lack of an alternative.

In the past, Grayscale has frequently talked about its plans to convert its GBTC and its other 14 crypto trusts into ETFs.

As reported by Blockchain.News in July, Sonnenshein stated that he expects all of the fund group’s products to one day become ETFs as soon as regulations allow for such conversions.

Grayscale wants its ETF to be backed by actual units of the cryptocurrency, not just linked to it via derivatives contracts like the futures.

If the SEC approves the application, it could further expand the leading crypto trading as a recognized investable asset.

However, some analysts feel that the chances of Grayscale’s physical Bitcoin ETF getting approved soon is small, given that SEC chairman Gary Gensler has frequently signed his preferences for futures products that provide more protection to investors.

Grayscale looks forward to expanding its product offerings to make digital assets more accessible to both retail and institutional investors.

Allison Herren Lee Steps Down as US SEC Commissioner

Democrat Allison Herren Lee stepped down from her position as a Commissioner of the US Securities and Exchange Commission (SEC) on Friday after serving the regulator for three years.

In a statement, her fellow commissioners said: “Allison has been a stalwart advocate for strong and stable markets, including by emphasizing the need for market participants to maintain the highest ethical standards. She has been a champion for stronger climate disclosures, whistleblower protections, and individual accountability for violations of the securities laws.”

Lee was nominated by President Trump to fill one of the Democratic seats on the commission in the spring of 2019. She was confirmed in July of that year.

Lee started working at the SEC in 2005, where she served various roles including being a counsel to former Commissioner Kara Stein and a senior counsel in the Division of Enforcement’s Complex Financial Instruments Unit.

Lee also briefly served as acting SEC chairperson under President Biden from January 2021 until Gary Gensler was appointed in April to fill the role on a permanent basis.

Her departure follows SEC Republican commissioner Elad Roisman, who vacated his seat in January of this year.

In June, Mr. Mark T. Uyeda was appointed by the Biden administration to fill up the Republican seat vacated by former commissioner Elad Roisman. Lee’s departure has given the Biden administration another open seat to fill at the SEC.

The SEC is now left with just four members: Mr. Gensler, Democrat Caroline Crenshaw, Republican Hester Peirce, and Republican Mark T. Uyeda.

The commission normally operates with five members. President Biden will need to nominate another Democrat to fill an open seat vacated by Lee.

Lee has been a vocal proponent of the SEC mandating climate-related disclosures for public companies as well as investment firms, broker-dealers, and investment advisers. She also argued in favor of enhanced disclosures concerning other environmental, social, and governance (ESG) matters and political contributions.

Lee recently supported a proposed rule for enhanced disclosures for private equity and hedge funds. She also recently encouraged the SEC to create a better system to hold securities lawyers accountable for providing bad advice to their public company clients.

In her public remarks, Lee expressed skepticism surrounding the crypto market. In March, she said digital assets mostly defy existing regulations and laws.