The world of cryptocurrencies had become a wild and unregulated market. Players didn’t have to conform to a particular set of rules for the benefit of all. The lack of oversight in the industry brought with it various illegal activities and instabilities. Time and again, this has caused volatility in their currencies. However, the U.S. Securities and Exchange Commission (SEC) is stepping in to make sure that everything stays above board.
US SEC and Exchange-traded funds (ETFs)
In the world of finance, ETFs are investment funds that operate in different stock markets using their derived value. This value is obtained from the assets they have on their books, which can include stocks, commodities, bonds, and so forth. In Cryptocurrency ETFs, the asset being used to determine value is the crypto itself, such as Bitcoin (BTC) or Monero. Although many have presented proposals to the SEC, none had been adopted. But the latest move by the SEC to facilitate tokenized products would mean that institutional money can now embrace the world of cryptocurrencies. This can be a big advantage to the industry as a whole.
US SEC and Regulation of Cryptocurrency Merchandise
Speaking recently at an event dubbed “Two Sides of the American Coin: Innovation & Regulation of Digital Assets,” the SEC Chairman Jay Clayton said that the SEC was hard at work creating regulations that will enable crypto ETFs while safeguarding the people’s interests. He explained:
“Our door is wide open if you want to show how to tokenize the ETF product in a way that adds efficiency, we want to meet with you, we want to facilitate that. Of course, you got to register it and do what you would do with any other ETF.”
According to the Financial Times, the SEC is collaborating with other state regulators such as the Commodity Futures Trading Commission (CFTC) and the Office of the Comptroller of the Currency (OCC) to be able to cover all cryptocurrency products. This collaboration will also help in determining the different jurisdictional issues surrounding various crypto products. However, the consensus is that the utility of a cryptocurrency will determine who will have jurisdiction. For instance, if the token is designed for sending and receiving payments, then banking regulators should have oversight of it.
As the Financial Times explains, tokenization in this regard means a particularly designated crypto-asset such as Bitcoin can be used to represent a security such as stock. This can then allow other players to make investments by using their digital currency smoothly and efficiently. That means no one is blocked from the markets because their assets are digital. Since trading today is electronic, the experience should be smooth and without hiccups.
The chairman of the panel, however, insisted that the same principles of transparency should be operational since it will help with the trust issues people have with cryptocurrencies and also safeguard the entire system from collapse. He continues by saying that the framework is time-tested and working as well as it should. Blockchain and distributed ledger technology are bringing a new level of efficiency and transparency in a way past centralized systems could not.
With all this, there is also a need to clearly define what a security is to prevent misunderstanding in the future. While some companies might want to finance their networks that have blockchain attributes, it is not necessarily a security. However, if the intention is to provide a return for using the network and the tokens, then it counts as a security. When such lines are clearly drawn, then payment systems can mature. Most people in the industry are apprehensive about the involvement of regulators such as the SEC. But experts agree that they are a welcoming force of order in a very wild industry.
Some investors are finding that the new rules and regulations make it harder to operate but they are ultimately there for people’s security. Other countries are also joining the fight in regulating cryptocurrencies and other digital products. Due to this, we can see tangible results in a few years for an industry that is still growing and getting stronger by the day. With tokenization available, even the most risk-averse investors will be able to tap into the world of digital products without much worry.