Shalini Nagarajan

<div id="highlights-block_62d80cbaa26f7" class="highlights">
 <ul>
 <li>The SEC&#8217;s enforcement division faced a grilling over its regulation of the cryptocurrency sector on Tuesday </li>
 <li>Congressman Tom Emmer said the SEC has become a “power-hungry regulator” under Gary Gensler</li>
 </ul>
 
</div>



Before the House Committee on Financial Services, US Rep. Brad Sherman said the US Securities and Exchange Commission (SEC) has failed to chase cryptocurrency exchanges that supported trade of Ripple Labs’ XRP token.



The SEC’s enforcement unit was cross-questioned over its regulation of crypto platforms in a <a href="https://financialservices.house.gov/events/eventsingle.aspx?EventID=409648" target="_blank" rel="noreferrer noopener">Congressional hearing</a> on Tuesday.



“If XRP is a security, and you think it is, and I think it is, why are these crypto exchanges not in violation of law?” Sherman, who <a href="https://twitter.com/coincenter/status/1126574631605997569" target="_blank" rel="noreferrer noopener">called</a> for a complete ban on cryptocurrencies in 2019, asked SEC division director Gurbir Grewal.



Grewal defended the Commission, saying it had gone after Delaware-headquartered exchange Poloniex last year. To that, Sherman said: “It’s easier to go after the small fish than the big fish.” 



The SEC has been locked in a lengthy lawsuit with Ripple Labs since December 2020, <a href="https://www.sec.gov/news/press-release/2020-338" target="_blank" rel="noreferrer noopener">accusing</a> the company and two executives of raising at least $1.3 billion by selling XRP — which the regulator has deemed an unregistered security. 



Ripple Labs has been fighting that battle by claiming the token and its underlying infrastructure are sufficiently decentralized so as not to be an <a href="https://www.sec.gov/files/dlt-framework.pdf" target="_blank" rel="noreferrer noopener">investment contract</a>, and hence should not be registered under the SEC. 



US platforms operated by several exchanges including Coinbase, Binance, FTX and Kraken suspended XRP trading for US residents following the SEC’s action against Ripple Labs.



<h3 class="wp-block-heading">Courts are yet to rule on whether XRP is a security</h3>



No formal outcome has determined that XRP is, in fact, a security. Ripple Labs&#8217; general counsel Stuart Alderoty has said on <a href="https://twitter.com/s_alderoty/status/1549443958954246144" target="_blank" rel="noreferrer noopener">Twitter</a> that “the mere filing of a case by the SEC doesn’t determine anything.”



Still, Sherman said during the hearing that “the division has determined that XRP is a security and is going after XRP, but for reasons that I&#8217;ll bring up in questions has not gone after the exchanges where tens of thousands of illegal securities transactions were occuring.”



XRP tanked by more than half directly following the SEC’s lawsuit but now trades 60% above those levels. 



<figure class="wp-block-embed is-type-wp-embed is-provider-flourish wp-block-embed-flourish"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" class="wp-embedded-content" sandbox="allow-scripts" security="restricted" src="https://flo.uri.sh/visualisation/10689843/embed#?secret=bjFUqeZT0L" data-secret="bjFUqeZT0L" frameborder="0" scrolling="no" height="575" width="700"></iframe>
</div></figure>



The token is however down 65% so far this year, but has gained nearly 17% in the last month alongside recovering crypto markets, data from <a href="https://www.blockworksresearch.com/assets/xrp/" target="_blank" rel="noreferrer noopener">Blockworks Research</a> shows.



Rep. Tom Emmer also slammed the SEC separately during the hearing, saying it hasn’t clarified which areas of the crypto industry fall under its jurisdiction and that its Strategic Hub for Innovation and Financial Technology (FinHub) has “dissolved” under Chairman Gary Gensler.



“Under Chair Gensler, the SEC has become a power-hungry regulator, politicizing enforcement, baiting companies to ‘come in and talk’ to the Commission then hitting them with enforcement actions and discouraging good-faith cooperation,” Emmer said.



The SEC <a href="https://www.sec.gov/news/press-release/2022-78" target="_blank" rel="noreferrer noopener">pledged</a> to double the headcount of its crypto enforcement division to 50 in May.



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Congressman Wants SEC to Punish Crypto Exchanges for Trading XRP

Casey Wagner

<div id="highlights-block_6258a3895ff50" class="highlights">
 <ul>
 <li>The rule seeks to change the definition of “exchange” to include entities that connect buyers and sellers</li>
 <li>The rule violates the First Amendment, according to Supreme Court precedent, Coin Center said</li>
 </ul>
 
</div>



A new rule proposed by the SEC to expand its definition of “exchange” will unfairly subject developers and publishers to registration requirements and violates the US Constitution, nonprofit research group Coin Center said Thursday.&nbsp;



The SEC <a href="https://www.federalregister.gov/documents/2022/03/18/2022-01975/amendments-regarding-the-definition-of-exchange-and-alternative-trading-systems-atss-that-trade-us" target="_blank" rel="noreferrer noopener">revealed</a> a proposed rule in March that would classify as exchanges entities that bring “buyers and sellers” together and &#8220;make available&#8221; communications protocols. The regulatory body has previously defined exchanges as entities that bring together “orders&#8221; and &#8220;use methods&#8221; to operate trades. 



“This rulemaking aims in part to expand the definition of &#8216;exchange&#8217; in order to encompass additional financial services organizations,” Coin Center’s <a href="https://www.coincenter.org/comments-to-the-securities-exchange-commission-on-amendments-regarding-the-definition-of-exchange-and-alternative-trading-systems/" target="_blank" rel="noreferrer noopener">comment letter</a> read.



“The way it does so, however, would create an inappropriately broad standard for registration that would impose an unconstitutional prior restraint on the protected speech activities of countless software developers and technologists.”



By expanding the definition of “exchange,” more groups and individuals would be required to register as such, Coin Center pointed out. While the SEC makes no mention of cryptocurrencies or digital asset technology in the proposal, the industry would be impacted should the rule pass, Coin Center said. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“This rule change would undoubtedly impact countless developers, publishers, and republishers who share protocols (rules in computer language) online that allow persons to trade ‘tokens’ or other valuable digital assets,” the comment letter said.&nbsp;</blockquote>



In addition to the harsher registration requirements, Coin Center argues that the proposed rule violates the First Amendment by infringing on freedom of speech.



The advocacy group cites a 1985 court case, Lowe v. SEC, where the SEC attempted to ban people from publishing newsletters with stock tips. The court ruled the ban unconstitutional.&nbsp;



“We urge the Commission to follow the counsel of former Commissioner Karmel as well as current Commissioner Peirce, and to narrow the scope of the definition and avoid chilling the speech rights of Americans,” the letter said.



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SEC Amendment Proposal Is Unconstitutional, Advocacy Group Says

<div id="highlights-block_6255d8e219aeb" class="highlights">
 <ul>
 <li>SEC motion to clarify emails and speech relating to ethereum is denied by district judge</li>
 <li>Emails show former SEC director was warned about potential conflicts of interest over his relationship with his prior employer</li>
 </ul>
 
</div>



Days after hundreds of emails between SEC top officials were released, a judge has ruled the regulator cannot edit or clarify the contents for the upcoming Ripple Labs trial.&nbsp;



The contents of the emails could prove crucial if they show the SEC acted inconsistently by accusing Ripple Labs executives of securities violations for issuing the XRP token after ruling that rival cryptocurrency ether was not a security.



Empower Oversight, a nonprofit whistleblower organization, last week released more than 200 emails between current and former SEC employees. It claims the emails prove there were conflicts of interest associated with how the SEC selected enforcement actions against digital asset companies, specifically the agency’s decision not to view ethereum the same as XRP.&nbsp;&nbsp;



The emails, which Empower Oversight received from a Freedom of Information Act request, specifically relate to William Hinman. Hinman served as director of the SEC’s division of corporate finance from May 2017 to December 2020.



Prior to his SEC appointment, Hinman worked at Simpson Thacher, a law firm that sits on the Enterprise Ethereum Alliance, which is dedicated to promoting the commercial use of Ethereum. Since leaving the SEC, Hinman has returned to Simpson Thatcher.



The <a href="https://empowr.us/wp-content/uploads/2022/04/2022-03-25-SEC-Responsive-Records-compressed.pdf" target="_blank" rel="noreferrer noopener">emails</a>, mostly from Shira Pavis Minton, the designated agency ethics official at the SEC, warn Hinman that he is not to engage in any SEC matters that could impact Simpson Thacher due to his financial interest in the firm. He was also advised not to meet with anyone from Simpson Thacher.



Hinman met with Josh Bonnie, a partner at Simpson Thacher, several times after being warned about the conflict of interest, Empower Oversight said in a <a href="https://empowr.us/empower-oversight-obtains-additional-documents-shedding-light-on-potential-cryptocurrency-conflicts-of-interest-within-the-sec/" target="_blank" rel="noreferrer noopener">statement</a>. The former SEC director also met with the co-founders of and investors in Ethereum ahead of the speech he gave in 2018 declaring ether a token, not a security. The speech had a strong positive impact on the price of ether and potentially benefited Simpson Thacher as a result, Empower Oversight argues.



“This raises questions as to whether Hinman fully disclosed Simpson Thacher’s role in Ethereum from SEC ethics officials and whether they would have approved the meetings or his speech if he had,” Empower Oversight’s statement said. 



If the Ripple Labs team can prove that leaders at the SEC had an interest in promoting and protecting ether over other, similar tokens, it could lead to a win, some speculate.



“This type of conflict of interest within a critical financial industry regulator is highly volatile in terms of undermining an already rocky public trust of government administration,” said Michael Fasanello, chief compliance officer of financial services firm LVL. “Doubt raised from these internal documents could affect not just the Ripple case, but other cases involving digital assets as well.”



The team at Empower Oversight agrees. The nonprofit filed a lawsuit against the SEC in December 2021 over Hinman’s conflict of interest with Simpson Thacher. The suit also mentions that Marc Berger, the former head of the SEC enforcement division and a main initiator of the lawsuit against Ripple Labs, also left the SEC for Simpson Thacher.



Others are less certain about how the emails might play into the ongoing Ripple suit, if at all.



“The SEC always picks and chooses. It can&#8217;t sue everyone all at once,” David Tawil, president of crypto hedge fund firm ProChain Capital, said. “There has to be more evidence relating to Ripple specifically.”



Regardless, the contents of the emails and Hinman’s infamous 2018 speech will be fair game in the upcoming trail. A judge has denied the SEC’s motion to review or clarify contents from the emails and speech, XRP attorney James K. Filan <a href="https://twitter.com/FilanLaw/status/1513647538074800130?s=20&amp;t=WeX-XWuxf0QKteO1J7zeHw">announced on Twitter</a> Wednesday.



“The SEC’s assertion that the Speech was intended to communicate [the SEC division of corporation finance’s] approach to regulating digital asset offerings is inconsistent with the SEC’s and Hinman’s previous position that the Speech was intended to and did reflect his personal views,” District Judge Analisa Torres’ decision read. 



“The SEC seeks to have it both ways, but the Speech was either intended to reflect agency policy or it was not. Having insisted that it reflected Hinman’s personal views, the SEC cannot now reject its own position.”



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SEC Emails Highlighting Alleged Conflict of Interest Set to Take Center Stage in Ripple Trial

Ben Strack

<div id="highlights-block_6255d510ec5c1" class="highlights">
 <ul>
 <li>Sonnenshein told Blockworks it is “tough to say what the SEC is waiting for”</li>
 <li>The firm, meanwhile, plans to launch products targeting other corners of crypto</li>
 </ul>
 
</div>



Crypto asset manager Grayscale Investments is holding the line on considering suing the Securities and Exchange Commission if the agency turns down its long-running proposal to convert its bitcoin trust to an ETF.&nbsp;



CEO Michael Sonnenshein — doubling down on <a href="https://cms.blockworks.co/grayscale-threatens-legal-action-if-sec-rejects-bitcoin-etf-conversion-bid/">previous comments</a> — said Tuesday at the Exchange ETF conference in Miami that “all options would be on the table” in such a scenario.



<figure class="wp-block-image size-large"><img loading="lazy" decoding="async" width="2048" height="1365" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg" alt="" class="wp-image-20052" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=386 386w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=392 392w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=329 329w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/04/Image-from-iOS-4-edited-1-scaled.jpg?w=50 50w" sizes="auto, (max-width: 2048px) 100vw, 2048px" /><figcaption>Grayscale CEO Michael Sonnenshein speaking at the Exchange ETF conference in Miami | Source: Ben Strack for Blockworks</figcaption></figure>



“When they’re looking at two issues that are alike, they as a regulator need to look at the two issues through a like lens,” Sonnenshein said.



The firm filed to convert its Grayscale Bitcoin Trust (GBTC) to an ETF last year. The investment vehicle, which launched in 2013, has $25.6 billion in assets.



More than 800,000 US accounts invest in GBTC, Sonnenshein said, noting it’s held by individuals, retirement accounts, mutual funds and ETFs.



“When you think about the opportunity that [the SEC] has, it’s really to be the voice of further protecting investors and bringing an already existing product into a more stringent regulatory framework that will give investors more protection,” Sonnenshein said.&nbsp;



The SEC’s ruling on the conversion is expected in July. GBTC has consistently traded at a discount in recent months, and more than 3,000 letters <a href="https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190.htm" target="_blank" rel="noreferrer noopener">have been submitted</a> to the SEC advocating for the change. 



Though a handful of fund issuers have applied for bitcoin spot ETFs in recent years, the SEC has yet to approve any.



Sonnenshein tweeted last week that the SEC’s arguments against a spot bitcoin ETF were “significantly weakened” after it <a href="https://cms.blockworks.co/sec-approves-bitcoin-futures-etf-filed-under-the-33-act/" target="_blank" rel="noreferrer noopener">approved a bitcoin futures ETF by Teucrium</a> that was filed under the Securities Act of 1933 (‘33 Act) — the same law under which spot bitcoin ETFs have been filed. 



Though the SEC had already permitted several ETFs that invest in bitcoin futures — from issuers ProShares, Valkyrie and VanEck — those were filed under the Investment Company Act of 1940 (‘40 Act).



The CEO told Blockworks bitcoin futures ETFs were a “huge milestone” for the industry and that “the next natural step” would be to approve a spot bitcoin ETF under the ’33 Act.



“It’d be tough to say what the SEC is waiting for singularly, because as recently as the Teucrium approval, they actually spell out that the futures contracts themselves are tied to the underlying spot markets themselves,” Sonnenshein said in an interview Tuesday. “So, if their hang-up has been the underlying market, well now they’ve certainly changed their tune.”



Though the conversion of GBTC to an ETF is the number one priority for the firm, Sonnenshein said, the firm expects to launch more products targeting different subsets of the crypto space. He did not specify particular areas Grayscale may focus on.



The asset manager in February <a href="https://cms.blockworks.co/grayscale-launches-first-etf/" target="_blank" rel="noreferrer noopener">launched its first ETF</a>, which invests in companies working to build out the digital economy. Plus, it <a href="https://cms.blockworks.co/grayscales-latest-fund-focuses-on-smart-contract-platforms/" target="_blank" rel="noreferrer noopener">launched a fund last month</a> allowing investors to bet on Ethereum’s largest competitors in the smart contract space.



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Grayscale CEO: Spot Bitcoin ETF Approval Is ‘The Next Natural Step’ for SEC

<div id="highlights-block_624ca878dc24d" class="highlights">
 <ul>
 <li>The Teucrium Bitcoin Futures Fund was filed under the Securities Act of 1933 — the regulation under which spot bitcoin ETFs are filed</li>
 <li>Previous approved bitcoin futures ETFs were filed under the Investment Company Act of 1940</li>
 </ul>
 
</div>



The Securities and Exchange Commission is expected to rule on a bitcoin futures ETF proposed by fund group Teucrium this week, and the agency’s decision could have implications for proposed spot bitcoin funds.



The SEC <a href="https://www.sec.gov/rules/sro/nysearca/2022/34-94054.pdf" target="_blank" rel="noreferrer noopener">delayed its decision</a> on the planned <a href="https://www.sec.gov/Archives/edgar/data/0001471824/000165495421006095/TeucriumBCFU_S1.htm" target="_blank" rel="noreferrer noopener">Teucrium Bitcoin Futures Fund</a> in January, noting at the time that it would rule on the product by April 8.



The regulator’s decision on the Teucrium fund “could expose the agency to rulemaking violations and strengthen arguments for spot ETFs,” according to Bloomberg Intelligence analysts.&nbsp;



ProShares and Valkyrie Investments launched bitcoin ETFs in October after gaining SEC approval. Those funds, filed under the Investment Company Act of 1940, were exempt from the 19b-4 process, Bloomberg Intelligence ETF Analyst James Seyffart said during a Jan. 4 <a href="https://etfprime.com/" target="_blank" rel="noreferrer noopener">ETF Prime podcast</a>, which he said puts the onus on the applicant to allay the concerns of the SEC’s Division of Trading and Markets.



The <a href="https://teucrium.com/" target="_blank" rel="noreferrer noopener">Teucrium</a> Bitcoin Futures Fund (BCFU), however, was filed under the Securities Act of 1933 — the regulation under which spot bitcoin ETFs are filed. The SEC has <a href="https://cms.blockworks.co/sec-rejects-vanecks-proposed-spot-bitcoin-etf/" target="_blank" rel="noreferrer noopener">denied proposed spot bitcoin ETFs </a>in recent months, citing that bitcoin markets lack surveillance and may be subject to manipulation.



“The SEC&#8217;s view of the market in previous responses indicated it would deny Teucrium&#8217;s fund, but we believe that&#8217;s unlikely now, as rejections could open the agency to Administrative Procedure Act violations,” Seyffart and Bloomberg Intelligence analyst Eric Balchunas wrote in a research note. “Conversely, if Teucrium&#8217;s funds are approved, the SEC will have to thread a needle explaining why the CME bitcoin futures market isn&#8217;t of significant size but is good enough for ETFs.”



SEC Chair Gary Gensler said in August that the <a href="https://www.govinfo.gov/content/pkg/COMPS-1879/pdf/COMPS-1879.pdf" target="_blank" rel="noreferrer noopener">Investment Company Act of 1940</a> provides “significant investor protections.”



Commonly known as the ’40 Act, its focus is on disclosure to the investing public of information about the fund and its investment objectives, as well as on investment company structure and operations, the SEC’s website states.



Fund group WisdomTree <a href="https://cms.blockworks.co/wisdomtree-amends-bitcoin-etf-application/" target="_blank" rel="noreferrer noopener">amended its Bitcoin Trust</a> in December to include certain requirements of the ’40 Act to the proposed product, such as using US Bank as a qualified custodian and disclosing its portfolio holdings and net asset value per share daily.



Teucrium believes the 1933 Act provides “appropriate investor protections such that disparate regulatory treatment of BCFU versus bitcoin ETFs is not justified,” W. Thomas Conner, a VedderPrice lawyer representing Teucrium, said in a Sept. 1 letter to the SEC.&nbsp;



A Teucrium spokesperson declined to comment.



“The reason folks are interested is that previous comments by Gensler were so clear in mentioning the &#8217;40 Act as the appropriate place for a bitcoin futures product to live,” Dave Nadig, chief investment officer and director of research at ETF Trends and ETF Database, told Blockworks. “I am pretty skeptical they&#8217;ll just let the Teucrium filing go through, and I don&#8217;t really see a huge demand for it if it did.”



Sumit Roy, crypto editor and analyst at ETF.com, said the decision on Teucrium’s proposed product may have implications for what fund structures the SEC looks favorably upon, but won&#8217;t do anything to change the odds of a spot bitcoin ETF coming to market.&nbsp;



“That has less to do with fund structure and more to do with bringing the cryptocurrency industry into the SEC&#8217;s regulatory fold,” Roy said. “There are positive movements on that front, but a spot bitcoin ETF is still a ways away, regardless of what happens with this particular bitcoin futures ETF.”



Seyffart and Balchunas said in a research note last month that they don’t expect the SEC to approve a spot bitcoin ETF <a href="https://cms.blockworks.co/is-a-change-to-exchange-definition-key-to-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">until the middle of 2023</a>.



The agency most recently rejected a bitcoin ETF application from fund groups Ark Invest and 21Shares, according to <a href="https://www.sec.gov/rules/sro/cboebzx/2022/34-94571.pdf" target="_blank" rel="noreferrer noopener">a March 31 filing</a>.



A spokesperson for Ark Invest did not immediately return a request for comment



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<li><a href="https://blockworks.co/newsletter/supplyshock">Supply Shock</a>: Tracking Bitcoin’s rise from internet plaything worth less than a penny to global phenomenon disrupting money as we know it.</li>
</ul>

SEC Ruling on Teucrium’s Bitcoin Futures ETF Could Impact Spot Funds

<div id="highlights-block_624b66ca9a7c9" class="highlights">
 <ul>
 <li>The probability is quite remote that any crypto platform has zero securities, according to Gensler</li>
 <li>Basic “rules of the road” will ultimately build confidence and trust in crypto markets, he said</li>
 </ul>
 
</div>



It’s imperative for crypto platforms to register with the SEC to build trust and become compliant, SEC Chair Gary Gensler said Monday.&nbsp;



Speaking at the Penn Law Capital Markets Association Annual Conference, which focused on the future of crypto, Gensler reiterated that crypto firms are likely trading securities —&nbsp;which fall under the regulatory purview of the SEC.



A majority of the 5,000 or so crypto tokens are still in the early innings, he said, and the public is generally investing anticipating profits based on the efforts of others — meeting the definition of an investment contract by the Supreme Court’s 1946 Howey Test.



“We do our best within our authorities to protect the public, but until and unless the platforms are actually registered and regulated, I don’t think the tokens will significantly come in and register,” Gensler said. “The platforms really ought to register; it’s in their long-term business interest. They just haven’t quite agreed with me on that.”



Centralized and decentralized crypto trading and lending platforms trade digital assets worth more than $100 billion per day, Gensler said. A typical trading platform has at least dozens of tokens on it, with some supporting hundreds.



“While each token’s legal status depends on its own facts and circumstances, given the commission’s experience with various tokens that are securities, and with so many tokens trading, the probability is quite remote that any given platform has zero securities,” he said.



Gensler pointed to the <a href="https://cms.blockworks.co/crypto-lender-blockfi-to-pay-100m-in-fines-to-us-regulators/" target="_blank" rel="noreferrer noopener">SEC’s charging BlockFi in February</a> of failing to register its retail crypto lending product with the agency, among other violations. The company, which was expected to pay $100 million in fines, agreed to attempt to bring its business into compliance with finance laws, he said.



In addition to crypto tokens and platforms, the SEC head shared concerns around stablecoins, noting “there are conflicts of interest and market integrity questions that would benefit from more oversight.”



“The three largest stablecoins were created by trading or lending platforms themselves, and US retail investors have no direct right of redemption for the two largest stablecoins by market capitalization,” he said.



Gensler <a href="https://cms.blockworks.co/secs-gensler-stablecoins-are-poker-chips/" target="_blank" rel="noreferrer noopener">said last September</a> that stablecoins are “acting almost like poker chips at the casino,” adding that many are not backed in-kind, dollar-to-dollar. 



Bills designed to regulate digital assets <a href="https://cms.blockworks.co/congressional-action-on-stablecoins-could-come-as-soon-as-this-month-source-says/" target="_blank" rel="noreferrer noopener">are soon expected</a> to be introduced by US lawmakers.  



President Joe Biden <a href="https://cms.blockworks.co/whos-in-charge-of-what-breaking-down-the-crypto-executive-order/" target="_blank" rel="noreferrer noopener">signed an executive order last month</a> that called on various government agencies to study the “responsible development” of digital assets.



Gensler also addressed crypto advertisements that <a href="https://cms.blockworks.co/super-bowl-ads-spark-public-interest-coinbase-site-crashes-from-traffic/" target="_blank" rel="noreferrer noopener">aired during the Super Bowl</a>, noting that ads “don’t equal credibility.” Many of the “dotcom” companies that marketed during the 2000 Super Bowl are now defunct, he said.



Basic “rules of the road” will ultimately build confidence and trust in crypto markets, according to the chairman.&nbsp;



“Traffic lights, speed limits, cops on the beat came with some cost,” Gensler said. “If we hadn’t done those reforms in the 1910s and ’20s, not just in the US, but around the globe, would we have sold as many cars? No way — we couldn’t have. Too many people would have been dying on the roads.”



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As Crypto Regulatory Scrutiny Builds, Gensler Urges Firms To Register With SEC

<div id="highlights-block_622b9057b548f" class="highlights">
 <ul>
 <li>The filing comes as the SEC rejected proposed spot bitcoin ETFs from fund issuers NYDIG and Global X Thursday</li>
 <li>Exchange Traded Concepts launched the Fount Metaverse ETF in October</li>
 </ul>
 
</div>



Private label ETF issuer Exchange Traded Concepts is planning to launch an index-tracking ETF that targets NFT companies.&nbsp;



The ETF, which tracks a Fount Investment Company index, is designed to track the performance of businesses that develop, manufacture, distribute or sell products or services in token technology subindustries, according to <a href="https://www.sec.gov/Archives/edgar/data/1452937/000121390022011649/s135666_485apos.htm" target="_blank" rel="noreferrer noopener">a Thursday regulatory disclosure</a>. 



That includes arts and entertainment, gaming, blockchain technology and NFT (non-fungible token) infrastructure.



“Each token economy company’s one year forecasted revenue is reviewed and only companies that are expected to derive more than 50% of their revenue from a token technology sub-industry may be included in the index,” the filing states.



The disclosure notes that NFTs are a way for individuals to own, collect and sell digital works of art. But the firm predicts that these non-fungible tokens will also “significantly alter traditional business models operated within the gaming industry.”&nbsp;



Integrating NFTs into gaming introduces a play-to-earn model where gamers can earn one-of-a-kind assets, such as plots of land, characters and costumes, which can be traded or sold.&nbsp;



<h3 class="wp-block-heading">The future of NFTs</h3>



Executives at Pantera Capital, which has<a href="https://cms.blockworks.co/pantera-capitals-blockchain-fund-has-1b-in-commitments/" target="_blank" rel="noreferrer noopener"> $1 billion in commitments</a> for a blockchain fund, labeled gaming as “a huge sector for years to come,” saying NFTs will help make that happen. 



Crypto exchange FTX last month unveiled <a href="https://cms.blockworks.co/ftx-to-launch-gaming-unit-to-support-mainstream-crypto-adoption/" target="_blank" rel="noreferrer noopener">a new gaming division</a> to allow developers to launch tokens and build NFTs within their online worlds.



Blockchain software technology company <a href="https://cms.blockworks.co/onboarding-the-next-wave-of-metamask-users-through-nfts/" target="_blank" rel="noreferrer noopener">ConsenSys said</a> it’s looking to use ​​NFTs to onboard the next tens of millions of users into its main product, Metamask, and is exploring collateralization, fractionalization, swapping, borrowing and lending.



Beyond collectibles, Johnna Powell, global co-head of ConsenSys NFTs, said a person’s resume, medical records or driver’s license could be NFTs.



“NFTs are at its core a structural innovation,” Upshot CEO Nick Emmons said during an ETHDenver panel last month. “As more exotic and esoteric financial instruments and vehicles come online, they will be represented as NFTs and will be able to fill in the rest of this picture of what a truly decentralized expressive financial system looks like.”



<h3 class="wp-block-heading">In the absence of spot crypto ETFs</h3>



The number of crypto-related ETFs in registration and on the market has grown in recent months as the Securities and Exchange Commission <a href="https://cms.blockworks.co/will-bidens-executive-order-speed-up-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">has not yet approved</a> an ETF that would invest in bitcoin directly. 



The SEC on Thursday rejected spot bitcoin ETF proposals from fund issuers <a href="https://www.sec.gov/rules/sro/nysearca/2022/34-94395.pdf" target="_blank" rel="noreferrer noopener">NYDIG</a> and <a href="https://www.sec.gov/rules/sro/cboebzx/2022/34-94396.pdf" target="_blank" rel="noreferrer noopener">Global X</a>.



Exchange Traded Concepts launched the Fount Metaverse ETF (MTVR) in October. The fund has roughly $11 million assets under management.



<a href="https://cms.blockworks.co/defiance-co-founder-nfts-will-be-bigger-than-the-internet/" target="_blank" rel="noreferrer noopener">Defiance ETFs in December launched</a> its Digital Revolution ETF (NFTZ), which invests in NFT marketplaces and issuers. That product currently also manages about $11 million of assets.



The Thursday filing did not indicate a ticker or expense ratio for the proposed Fount Token Economy ETF. A spokesperson for the company did not immediately return a request for comment.



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New Planned ETF Targets NFT-related Stocks

Morgan Chittum

<div id="highlights-block_6221167ace99e" class="highlights">
 <ul>
 <li>The SEC is especially seeking information on fractional NFTs</li>
 <li>NFTs can be deemed securities if they pass the “Howey Test,” a regulatory standard used to determine if a transaction has an investment contract </li>
 </ul>
 
</div>



The SEC is investigating NFT creators and cryptocurrency exchanges over potential violations of securities law, according to <a href="https://www.bloomberg.com/news/articles/2022-03-02/sec-scrutinizes-nft-market-over-illegal-crypto-token-offerings" target="_blank" rel="noreferrer noopener">Bloomberg.</a>&nbsp;



The probe is looking into whether NFTs (non-fungible tokens) &#8220;are being utilized to raise money like traditional securities,” unnamed sources told the news outlet.&nbsp;



The federal agency is seeking information, in particular, on fractional NFTs — cryptoassets that have been divided or securitized, allowing many investors to own a fraction.



NFTs can be deemed securities if they pass the so-called “Howey Test,” a regulatory standard used to determine if a transaction has an &#8220;investment contract,” according to the SEC.



SEC Commissioner Hester Peirce may have previously signaled an inquiry during an interview with <a href="https://www.coindesk.com/policy/2021/12/30/sec-commissioner-hester-peirce-says-washington-doesnt-need-a-new-crypto-regulator/" target="_blank" rel="noreferrer noopener">Coindesk TV</a> last December.



“Given the breadth of the NFT landscape, certain pieces of it might fall within our jurisdiction,” Peirce said. “People need to be thinking about potential places where NFTs might run into the securities regulatory regime.”



<a href="https://cms.blockworks.co/investors-can-now-buy-home-equity-slices-via-fractionalized-nfts/" target="_blank" rel="noreferrer noopener">Qualifying as a security</a> and meeting regulatory requirements, however, have been points of uncertainty for crypto startups. A <a href="https://www.dandodiary.com/wp-content/uploads/sites/893/2021/06/Dapper-Labs-lawsuit-complaint.pdf" target="_blank" rel="noreferrer noopener">class action complaint</a> was filed last year against NFT creator Dapper Labs, alleging that some of the digital collectibles were acting as unregistered securities.



The SEC did not immediately respond to a request for comment.



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SEC Reportedly Targets NFT Market Over Potential Violations of Securities Law

<div id="highlights-block_620e9515e4909" class="highlights">
 <ul>
 <li>SEC Chair Gary Gensler said his agency must consider whether a spot bitcoin ETF is designed to prevent fraudulent and manipulative acts and practices</li>
 <li>Nearly 100 people have so far weighed in on Grayscale Investments’ proposed conversion of its Bitcoin Trust to an ETF in public comments to the SEC</li>
 </ul>
 
</div>



As the Securities and Exchange Commission refuses to budge on signing off on a spot bitcoin ETF, a growing number of industry participants are urging the regulator to reconsider.



The latest battleground: Grayscale Investments’ proposal to convert its bitcoin trust to an ETF (exchange-traded fund). <a href="https://cms.blockworks.co/grayscale-files-to-convert-its-bitcoin-trust-into-an-etf/" target="_blank" rel="noreferrer noopener">The firm filed</a> to morph the $28-billion Grayscale Bitcoin Trust (GBTC) to an ETF in October after the first bitcoin futures ETF <a href="https://cms.blockworks.co/first-bitcoin-futures-etf-nears-1b-on-first-day-of-trading/" target="_blank" rel="noreferrer noopener">began trading</a>.



During the SEC’s 240-day review period, which expires in July, the agency is soliciting feedback from the public.



Andrew Farinelli, a private wealth advisor at Embree Financial, wrote to the SEC that the conversion would reduce costs and improve security for bitcoin investors. Chicago-based Embree, which has 85 institutional clients and 300 families, runs about $1.5 billion.



“Their accounts and investment would often be fully protected under the FDIC, it would be custodied at a trusted institution — [such as] Charles Schwab — and investment itself would be safer under the SEC’s regulation of ETFs,” Farinelli wrote. “Lastly…this allows investment professionals like myself to provide the best guidance to their clients and investors at large.”&nbsp;



SEC Chair Gary Gensler, meanwhile, has given bitcoin ETF hopefuls little reason for optimism. In his latest public comment, Gensler wrote a <a href="https://pbs.twimg.com/media/FLzxM5gUUAsyQOt.jpg" target="_blank" rel="noreferrer noopener">letter</a> Tuesday to US Rep. Tom Emmer, R-Minn., saying the “different holdings” of bitcoin spot and futures products have led to “different regulatory outcomes.” Gensler is “technology-neutral” on the outcome, he wrote.



“When reviewing bitcoin spot ETPs, the commission must apply all the standards of the Exchange Act, which it has followed in connection with its orders considering previous proposals to list bitcoin spot ETPs,” Gensler wrote. “In particular, the commission must consider if the bitcoin spot ETP proposal is designed to prevent fraudulent and manipulative acts and practices.”



The letter followed a November dispatch to Gensler from Emmer and Rep. Darren Soto, D-Fla., saying the agency’s approval of a futures ETF should equate to a greenlight for a spot product.



“We do not understand the SEC’s views around the perceived material difference in risk profiles, since both the futures and spot bitcoin markets are inherently intertwined and bear the same risks regarding fraud and manipulation,” Emmer and Soto wrote.



The stakes are rising. <a href="https://cms.blockworks.co/financial-advisors-bullish-on-crypto/" target="_blank" rel="noreferrer noopener">A survey last month</a> found that the percentage of financial professionals investing client funds in crypto rose from 9% to 15% over the past year. 



Sixty percent cited regulatory concerns as preventing them from making their first or increasing their crypto allocation, while 32% noted the lack of easily accessible investment vehicles, such as ETFs.



The argument of industry powerhouses such as Coinbase is that a spot ETF would lead to an expansion of safe retail investment in bitcoin.



Paul Grewal, chief legal officer at Coinbase, also wrote a letter in support of the conversion in December.&nbsp;



“We believe investors should have access to GBTC in an ETP format because it offers a tried and tested way for retail investors to gain exposure to bitcoin at prices that closely reflect spot Bitcoin trading prices without holding it themselves,” Grewal wrote.



Grewal joined more than <a href="https://www.sec.gov/comments/sr-nysearca-2021-90/srnysearca202190.htm" target="_blank" rel="noreferrer noopener">100 people </a>in writing, with the majority in support of the Grayscale conversion.



“This issue remains a priority for us and we will continue to oversee the SEC in its mission to maintain fair and orderly markets and facilitate capital formation,” Emmer wrote in a Thursday Twitter post.



A spokesperson for Emmer did not immediately return a request for further comment. 



The recent flood of public comments comes after attorneys representing Grayscale Investments <a href="https://cms.blockworks.co/grayscale-attorneys-argue-sec-for-spot-bitcoin-etf-approval/" target="_blank" rel="noreferrer noopener">called the agency’s decision</a> to approve a futures-based fund and not a spot ETF “arbitrary and capricious.”



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securities and exchange commission