SEC Approves Spot ETH ETFs, Bitcoin & Crypto Now a Presidential Campaign Issue, Regulatory Bill FIT21 Passes, House Bans Fed CBDC
News Block #38 (05/23/2024)
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The SEC Approves Spot Ethereum ETFs
What seemed unthinkable to most analysts and investors only a week ago has now become a reality â on Thursday â the SEC approved multiple spot Ethereum ETFs.
You might be saying, âWait, what?!â And Iâm there with you.
Until Monday, the market gave a very small probability of these ETFs getting approved. Less than a month ago, Reuters reported that multiple issuers expected their filings to be denied after talks with the SEC were âone-sidedâ and seemingly going nowhere.
But something apparently changed over the weekendâthere is much speculation that political pressure from the Biden camp came down on the SEC. On Monday, SEC officials started asking exchanges and issuers to quickly make changes to their filings to get them in before Thursdayâs deadline.
The main change to the filings was that the SEC would not allow issuers to stake their ETH holdings. It seems like staking is where the SEC is drawing a line in the sand in terms of when ETH might be considered a security or a commodity in the future.
Once the filings were updated, the Commission went ahead and approved them. But itâs important to note that the SEC has just approved the ability for exchanges to list the Ethereum ETFs. The next step is for the SEC to approve each issuerâs S-1 registration filings before the ETFs can actually go live and be made available to investors. This process could take days, weeks, or even months.
Bitcoin & Crypto Officially Become a Presidential Campaign Issue
So, all of this begs the questionâwhat the heck caused the SEC to do a complete 180 on this overnight? I firmly believe it all comes down to politics.
Crypto has become an important campaign issue for the upcoming Presidential election.
Led by Senator Elizabeth Warren and her quote âAnti-Crypto Army,â the Democratic party and the Biden Administration have been outright hostile towards the crypto industry during the last four years.
From signing executive orders pushing federal agencies to investigate the industry and root out illicit activity to ordering the EIA to perform an unlawful emergency data collection on Bitcoin miners to proposing a 30% energy tax on Bitcoin miners in his latest budget proposal, Biden has attacked the industry at every turn.
We even just discovered that the White House may have played a key role in Custodiaâs denial of a Fed Master Account earlier in the year. Listen to what Custodia CEO Caitlin Long recently revealed under testimony.đ
So â itâs been clear for a while now that Biden has been no friend of Bitcoin, and this only continued last week when he announced that he would veto legislation that would overturn the SECâs controversial SAB-121 rule, which prohibited banks from custodying Bitcoin on behalf of their clients.
But then something unexpected happenedâtwelve Democratic senators broke ranks and voted to overturn the rule despite Bidenâs plans to veto it, signaling that the Democratic party is no longer fully on board with Elizabeth Warren and Bidenâs anti-crypto agenda.
I wonder whyâŚ
One reason could be that this SEC rule upset one of the most powerful lobbies in Washingtonâthe banking lobby. Since the success of the Bitcoin ETFs, Wall Street has been urging regulators to repeal this rule. In short, the banks want to be able to custody Bitcoin so they can make some money off this new emerging asset class.
As Bitwise CIO Matt Hougan mentioned, itâs unsurprising that Senator Chuck Schumer voted to overturn the rule when Wall Street is the largest industry donor to Schumerâs campaign fund.
On top of bending the knee to Wall Street, this change in attitude from democrats is likelyâ at least in part â in response to former President Trump publicly embracing crypto.
Trump recently announced that he will begin accepting cryptocurrency donations for his campaign.
The Trump Campaign didnât mince its words in a statement saying, âBiden surrogate Elizabeth Warren said, in an attack on cryptocurrency, that she was building an âanti-crypto armyâ to restrict Americansâ right to make their own financial choicesâŚMAGA supporters, now with a new cryptocurrency option, will build a crypto army moving the campaign to victory on November 5th!â
Ok â so what I think is really going on here is that the Democrats suddenly had the cold realization that crypto represents a legitimate voting block in 2024.
According to data from Morning Consult, nearly 20% of U.S. adults now own cryptocurrency. Coinbase alone is estimated to have more than 98 million registered users! These are BIG numbers that these Presidential candidates simply cannot ignore.
So, I donât think itâs a coincidence that these Ethereum ETF approvals came after the Trump Campaign embraced crypto. It seems to me that the Biden Administration wanted to throw the crypto industry a bone after attacking it for the last four years. I bet they are worried that their hostile stance against the industry has potentially handed millions of votes to Trump on a silver platter. Votes they canât afford to lose.
Personally, I find it quite sad that political agendas can sway a regulator to suddenly suggest something is a commodity when it looks a lot like a security to me.
The facts are clear â Ethereum began with a pre-mine in 2014. Investors gave the Ethereum Foundation Bitcoin and that Bitcoin was pooled together to build the Ethereum network. In return, the investors received Ether. In other words, there was an investment of money with the expectation of profit derived from the efforts of others. Iâm no securities lawyer, but Ethereumâs origin story sounds like an unregistered securities offering to me.
But we canât change what we canât control, and thereâs no doubt about itâthis is a win for the broader crypto industry, but it is a win for Bitcoin too.
The U.S. government softening its approach to crypto will undoubtedly be a tailwind for the world's largest, most trusted and well-established cryptocurrency ecosystem.
This development doesnât change the fact that only Bitcoin has a monetary policy that can be trusted to never change. Bitcoinâs unchangeable nature is what ultimately sets it apart and allows it to be a good long-term store of value. Now more than ever, people will need to learn why Bitcoin is different and special amongst a sea of other cryptocurrencies so that they can properly save for their futures.
Crypto Regulatory Bill FIT21 Passes the House
The regulatory momentum for the broader crypto industry did not stop with the Ethereum ETF approvals this week.Â
On Thursday, the House passed the CBDC Anti-Surveillance State Act, which bans the Federal Reserve from issuing a Central Bank Digital Currency. This vote was not bipartisan though. Only three democrats voted in favor of the bill. It seems like Democrats have taken a pro-CBDC stance, with some calling the risks âoverblown.â
Furthermore, on Wednesday, the House passed the Financial Innovation and Technology for the 21st Century Act or FIT21, marking the first time comprehensive crypto legislation has been voted on and passed in the House. The bill received overwhelmingly bipartisan support, with 71 democrats voting in favor of the Republican-led bill.Â
The bill attempts to create a regulatory framework for the broader crypto industry.
Although it passed the House, the Biden Administration once again issued a statement opposing the bill, but this time, it notably did not say he would veto it. Read the statement from Biden belowâŚ
This is much softer language from the Biden Administration compared to just last week.
President Biden wasnât the only person who opposed the bill, SEC Chairman Gary Gensler also issued a statement making it clear he was not too happy. He wrote that FIT21 would âcreate new regulatory gaps and undermine decades of precedent regarding the oversight of investment contracts, putting investors and capital markets at immeasurable risk.â
He does make some great points here. He argues that this bill would shield many of these crypto assets from complying with existing securities laws, meaning if this bill gets passed, many of these cryptocurrency founders who issued unregistered securities and made millions off of unsuspecting investors would get away with their ill-gotten gains.
Furthermore, the most ridiculous part of the bill is how it defines whether something is a decentralized commodity or not.
According to the bill, a digital asset should be considered decentralized if, over the last twelve months, 1) no affiliated person has had unilateral control, 2) no one has more than 20% of the digital asset or voting power, and 3) the founders issued no tokens. And finally, during the last three months, no affiliated person has marketed or implemented code for the project.
So, to summarize, if a founder distributes 19% of the token supply to themselves, allows a year to pass, and stops developing and marketing the project for three months, thenâjust like magicâVoila! Itâs decentralized!
This is pretty absurd. The issue here is decentralization is extremely difficult to objectively measure. In many ways, the proof is in the pudding. A digital asset has to prove it is sufficiently decentralized over time by being resistant to change. Bitcoin has proven itself to be decentralized and has 15 years of history to support that, given that it has never changed despite various attacks attempting to do so.
This bill's arbitrarily defined timelines and percentages do not suddenly make a digital asset decentralized.
Itâs not hard to see why Gary Gensler feels this bill is basically the broader crypto industry trying to skirt securities laws.
Although I may sound critical of some parts of this bill, itâs not all bad.
For instance, this bill would provide federal-level protection for self-custody and permissionless transactions. That is good for Bitcoin and freedom overall.
This bill now moves to the Senate and is unlikely to pass as it stands today. There will be debate and more opposition, but overall, it represents positive momentum.
Michael Saylor said it well when he tweeted, âConsensus is building in favor of a 'comprehensive and balanced regulatory framework for digital assets' that will be good for Bitcoin, the crypto industry, the United States, and the world.â
Years ago, people were afraid the U.S. government would ban Bitcoin. Fast-forward to today, and there is strong momentum in Congress to pass legislation that would not only allow Bitcoin to persist but potentially thrive in the Land of the Free.Â
Until next week, keep stacking.
- Nâż
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NEW: Hunter Horsley: Mainstream Era of Bitcoin, Spot ETF Race & What % Institutions Are Investing with CEO of Bitwise
Hunter Horsley is the CEO and Co-Founder of Bitwise Asset Management, one of the largest cryptocurrency asset managers. The former Facebook product manager earned a Bachelor's in Economics from The Wharton School at the University of Pennsylvania.
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The decentralization criteria you've described is ridiculous!! Thanks Nat, for another great short and to the point episode.
"According to the bill, a digital asset should be considered decentralized if, over the last twelve months, 1) no affiliated person has had unilateral control, 2) no one has more than 20% of the digital asset or voting power, and 3) the founders issued no tokens. And finally, during the last three months, no affiliated person has marketed or implemented code for the project.
So, to summarize, if a founder distributes 19% of the token supply to themselves, allows a year to pass, and stops developing and marketing the project for three months, thenâjust like magicâVoila! Itâs decentralized!"
Great article - answered many questions. thank you.
Eth will have rug pulled eventually đ