Big Moves in the Regulation of the Crypto Industry
Last week, the SEC published some new guidelines for token issuers as part of an attempt to finally provide some clarity on the subject. This new regulatory framework has been in the works for more than 6 months and attacks the issue of whether a token is a security or not.
Classification as a security is a complex topic that starts with the Howey test but enters a more complex debate when you start to analyze the governance protocols of these different tokens. Ideally, these regulations will act as a “plain English” interpretation on the topic and make it easier for developers and investors to understand how they will be regulated in the future.
The document goes on to give examples of token and networks and explain which would be governed by securities laws. One of the most useful parts of the regulation is the discussion of the re-evaluation of tokens. Some tokens may have been treated as securities, but are no longer necessary to do so, and vice versa.
This will depend upon whether the distributed ledger is fully operational, the specific use case of the token, how much the token is likely to appreciate, and whether it is a likely store of value. There are still many questions regarding the custody issue with broker-dealers, but this is a move in the right direction.
CFTC Leaving Futures Be
Regulation and the need for clearer guidelines has long been a need here. The Chairman of the Commodity Futures Trading Commission (CFTC), J. Christopher Giancarlo, recently discussed the Commission’s position on crypto derivatives. He views his role as one of monitoring rather them impeding the development of the sector, and has resisted requests for restrictions on the industry. In his words:
“Instead, we have favored close monitoring of market developments while not hindering the introduction of new products like bitcoin futures, which have proven invaluable in letting market forces determine the appropriate value of the bitcoin.”
The CFTC’s mandate is to embrace market-based solutions that are considered to be innovative, which explains why they chose not to impede the launch of Bitcoin futures on Chicago Mercantile Exchange and the Chicago Board Options Exchange. In fact, the creation of this market is thought to have offset speculative demand by adding depth the the market.
Securities regulations and approvals of futures trading represent outside regulation, but there has also been a strong push for regulation from the inside. Market manipulation has been a problem for a long time, and it strongly affects how outsiders view the industry.
Solidus Labs, a company started by some Goldman Sachs engineers, seeks to solve this problem. They have raised $3 million that will go towards creating market surveillance tools that should be able to identify market manipulation as a it happens. The technology employs a mix of artificial intelligence (AI) and machine learning, and will be focused on identifying trading anomalies as they happen.
Ideally, as Solidus gets better at identifying market manipulation, there will be less of a stigma against cryptocurrencies and an ETF will finally be approved. Self-governance has been a priority for a long time because of the effect its benefits may have on mass adoption. Solidus has already reduced trading false positives by 30%, which will continue to improve the climate in general.