This piece is part of a monthly series covering regulatory updates related to cryptocurrencies (here are the updates from May, June, and July). This piece provides important regulatory updates since the July piece, broken down by developments in the United States and the rest of the world.

United States

1. Bitcoin ETF Reapplication Rejected by the SEC (July 26th): A June proposal to list and trade the Winklevoss Bitcoin Trust as an ETF was reviewed and rejected by the SEC in a 3–1 decision (a similar proposal from the same group was rejected in 2017). In its decision, the SEC noted that it does not consider markets for Bitcoin to be sufficiently resistant to price manipulation. However, the SEC also made clear that this decision is not a reflection of its evaluation of the potential of Bitcoin or blockchain technology. Commissioner Hester M. Pierce was the single dissenter and explained her view by stating that “More institutional participation would ameliorate many of the Commission’s concerns with the Bitcoin market that underlie its disapproval order.” The SEC is currently evaluating another proposal for a Bitcoin ETF from Van Eck and SolidX which it must respond to within 45 days of submission, meaning another decision on the topic will be made by August 16th.

2. Federal Reserve Chairman Stated Cryptocurrencies Are Not Big Enough to Pose a Threat or Actively Regulate (July 18th): Federal Reserve Chairman Jerome Powell made clear that regulating the cryptocurrency market is not a priority for the Federal Reserve. In his statement, he explained that the Fed does not view the cryptocurrency market as large enough to pose a threat to the financial system and that the group has no interest in regulating it. Cryptocurrencies continue to be evaluated by the SEC and CFTC but do not yet touch the responsibilities of the Federal Reserve, which is tasked with ensuring a “safe, flexible, and stable monetary and financial system.” Given that cryptocurrencies are not broadly used as savings or spendings assets, they do not yet have much of an impact on the broader mainstream financial system.

3. CFA Will Add Crypto, Blockchain Topics (July 16th): The CFA will add topics on cryptocurrencies and blockchain to its Level I and II curriculums in 2019. The topics were added as part of a new section “Fintech in Investment Management” and will appear along with other fintech topics, like AI and automated trading. Perhaps most meaningful were the comments from Stephen Horan, managing director for general education and curriculum at CFA Institute, who said that “we saw the field advancing more quickly than other fields and we also saw it as more durable. This not a passing fad.” There are roughly 150,000 CFA charterholders worldwide as of 2018, and achieving charterholder status is regarded as an accomplishment, given that it requires passing three exam levels over three to four years. The designation is common for roles in investment research or portfolio management.

Rest of the World

1. South Korea to Recognize Crypto Exchanges as Regulated Banks (July 6th): Cryptocurrency exchanges will be categorized as “Cryptocurrency Exchange and Brokerage” and will be regulated under the umbrella of financial institutions and banks. As profiled in prior monthly updates, South Korea has gone back and forth on what approach to take regarding cryptocurrency exchanges. The government has been concerned about protecting retail investors who are impacted by exchange hacks but has also been worried about how involvement might increase the perceived legitimacy of the space. This update will likely make it more difficult for exchanges to operate at a small scale by increasing know-your-customer (KYC) and anti-money-laundering (AML) requirements as well as internal reporting. Over the long-run, however, acknowledgement and regulation of exchanges may open up the industry to more institutional participants.
2. France Announced Plan to Regulate ICOs (July 9th): France will develop a framework to regulate ICOs. As explained by a source at the French Treasury, “ICOs can be very risky for investors and with no regulatory oversight, it’s true that these types of fundraising can lead to money-laundering … That being said, we must also admit that ICOs are a major source of fundraising for start-ups and SMEs. A lack of regulation could be detrimental for both the issuers who would have no other option but to launch their project in a country that already has a regulation in place and for the investors who could be subject to fraud.” This decision followed a consultation done by the Autorité des Marches Financiers (AMF) on how ICOs should be handled.
3. Financial Stability Board (FSB) Announced Framework to Monitor Crypto-asset Market (July 16th): As it announced in a blog post on its website, “For its part, the FSB has developed a framework, in collaboration with Committee on Payments and Market Infrastructures (CPMI), to monitor the financial stability implications of developments in crypto-asset markets. The report published today sets out the metrics that the FSB will use to monitor crypto-asset markets as part of its ongoing assessment of vulnerabilities in the financial system. … While the FSB believes that crypto-assets do not pose a material risk to global financial stability at this time, it recognises the need for vigilant monitoring in light of the speed of market developments.” As it explains in the report, “The Financial Stability Board (FSB) is established to coordinate at the international level the work of national financial authorities and international standard-setting bodies in order to develop and promote the implementation of effective regulatory, supervisory, and other financial sector policies.” To start, the FSB will monitor the following metrics: market capitalization, ICO issuance rate, price volatility, banks’ exposure to crypto-assets, correlation between major crypto-assets and other asset classes like gold and equities, amongst others.
4. China to “Crush” ICOs Targeting Its Citizens (July 10th): ICOs have been illegal in China since 2017, but the vice governor of the People’s Bank of China (PBoC), Pan Gongsheng, reiterated the government’s stance by stating that “any new financial product or phenomenon that is not authorized under the existing legal framework, we will crush them as soon as they dare to surface.” This statement makes clear that the government has no plans to overturn its ban on ICOs and also that it sees preventing ICOs from targeting Chinese investors as a priority.

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Note: I do not and will not provide investment advice or recommendation.