Wall Street struggles to sell Washington on Bitcoin for the masses

But lobbyists are facing an uphill battle, which has become even tougher after dramatic price fluctuations in recent days. Bitcoin has fallen nearly 40 percent since the beginning of May. Investor risks build on broader concerns about whether cryptocurrency promotes money laundering, aids tax evaders, and could endanger the safety of the financial markets themselves if used widely.

“Our country needs to dig deeper into the handling of cryptocurrency before regulations are enacted,” said Senator Elizabeth Warren (D-Mass.), A member of the banking committee, in an interview. “The wild fluctuations in crypto prices trigger an alarm that every regulator hears.”

The debate over Bitcoin exchange-traded funds or ETFs will be a key indicator of how willing Washington is to enter the digital currency markets in the face of growing questions about whether crypto has value to society or is just a speculative fad that carries real risks to flourish for investors.

Bitcoin is the largest virtual asset that, unlike the dollar, is distributed outside of government control and is often operated on a decentralized basis. The upcoming proposals for Bitcoin ETFs would allow more investors to get exposure to the digital currency without having to buy it directly.

The funds would essentially mimic the prices of Bitcoin and other cryptocurrencies. Investors could buy shares in the funds and avoid the need for so-called digital wallets to hold the digital currency. The complications of handling and trading the virtual assets would be left to the fund managers.

The SEC has long been skeptical of the funds Rejection of previous proposals by the Winklevoss twins – from Facebook fame – over fears that the agency could not guarantee safeguards against fraud and manipulation.

In addition to pending fund proposals supported by Fidelity and Scaramucci’s SkyBridge, One River Digital Asset Management is advised by former SEC chairman Jay Clayton as it launches a “carbon neutral” Bitcoin ETF. Clayton headed the agency in the Trump era and did not sign any of the cryptocurrency fund proposals during his tenure. During his tenure, Clayton highlighted concerns that cryptocurrency markets were ripe Fraud and manipulation and said that The regulators had a number of problems to solve before ETFs are approved.

The SEC, which is responsible for launching the funds, appears in no hurry to expand access to bitcoin investments. The agency’s new chairman, Gary Gensler, has turned out to be a clear cryptoskeptic in recent weeks. This surprised some proponents who hoped to make Bitcoin more accessible after teaching and researching digital finance at MIT.

Gensler has raised fundamental concerns about the business of the underlying cryptocurrency market that the ETFs seek to track. He says exchanges that make it easier to buy and sell digital currencies are not adequately regulated and market data is lacking.

“Overall, this has resulted in significantly less investor protection than in our traditional securities markets and correspondingly greater opportunities for fraud and manipulation,” said Gensler on Wednesday at House House.

Despite growing industry excitement, Wall Street is also divided on the future of cryptocurrency. Some executives reject the urge to expand access even though their companies are trying to meet customer demand.

Jamie Dimon, CEO of JPMorgan Chase, said on House Testimony Thursday that his company – the country’s largest bank – is debating how to securely make it available. But Dimon’s personal advice? “Stay away from it.”

“That doesn’t mean customers don’t want it,” said Dimon. “It goes back to how you have to run a business. I don’t smoke marijuana, but if you make it nationally legal, I won’t stop our people from banking it. “

One of Gensler’s colleagues asks him to take action. SEC Commissioner Hester Peirce, a Republican on the agency’s five-member board, said Gensler’s recent warnings “conveyed the overly conservative approach that has characterized the SEC in the crypto arena.” She said the agency should push crypto fund approval on their cause.

Six applications are pending with the SEC to list cryptocurrency ETFs on the New York Stock Exchange and Cboe Global Markets. Wall Street titans line up to service the funds, including Morgan Stanley, the Bank of New York Mellon and State Street.

“With the market growing and interest, a lot is at stake as people compete for the first approval,” said Peirce.

Peirce and industry players say the SEC is allowing crypto activity to remain outside the purview of government guardians by not including digital currency in the mainstream regulatory environment.

“It lets the wild West live on,” said Tom Quaadman, executive vice president of the US Chamber of Commerce Center for Capital Markets Competitiveness.

Jan van Eck, the CEO of $ 71 billion wealth manager VanEck, said those who speak out against Bitcoin ETFs – like the ones his company proposes – are “effectively forcing investors into inferior fund structures and less-regulated venues.”

Critics of the funds’ advancement say the SEC must first address the underlying risks in the cryptocurrency market.

“Regulatory concerns about Bitcoin and other cryptocurrency markets go well beyond ETF issues,” said Joseph Cisewski, senior derivatives advisor and special adviser to Wall Street reform group Better Markets. I have repeatedly seen how risks increase and develop when allowed to develop within the cracks of our regulatory system. “

On Capitol Hill, lawmakers from both sides of the aisle – including staunch Bitcoin supporters – are unconvinced or on the fence, suggesting the SEC will face political pressure to continue to slowly address the issue.

Corporations “need to show their contribution to our economy, and in that sense they really haven’t done well,” Senate banking chairman Sherrod Brown, Ohio, said in an interview.

“I would caution the commission against prioritizing the review of cryptocurrency ETFs over complying with legal guidelines of Congress,” said Rep. Brad Sherman, D-Calif., Who leads SEC oversight in the House of Representatives and wants that the agency finalizes the rules by which it languishes under the 2010 Dodd-Frank Act.

Republican lawmakers advocating free markets and digital currencies said in interviews that they too take time to research the issue before endorsing the effort.

“I’m not quite sure what to do yet,” said Senator Cynthia Lummis (R-Wyo.), Who launched the Senate’s bipartisan caucus on financial innovation in May to promote policy development in the field of crypto and other financial technologies .

Senator Thom Tillis (RN.C.), who serves on the Senate Banking Committee with Lummis, said he was concerned about the accuracy of the underlying reference prices for the funds as crypto trading takes place in locations not controlled by the SEC to be regulated.

Tillis said the fund applications would have to be “examined primarily from the point of view of consumer protection”.

“We need to figure out how to deal with it,” said Senator Jon Tester (D-Mont.), A member of the banking committee. “Otherwise a lot of people will lose a lot of money.”

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