Episode 244 - CFTC & SEC moving forward with Crypto Rules

So some exciting things this week, and w- I, I know we've talked about it in the past couple of weeks that the CLARITY Act has kinda stalled, but the CFTC and the SEC and even the Treasury are almost making up for that right now.

So the, the CFTC just issued some guidance, I think yesterday, to advance an advance notice of s- of some proposed rulemaking in regulation of crypto asset transactions and crypto asset markets.

So it's gonna cover leverage, margin, finance crypto activity, a new exchange category under the existing Commodity Exchange Act authority, and it's pretty much gonna create this path for national oversight of crypto exchanges, and it will protect developers who only ship code, which is something we've been talking about for the last year or so, especially with all the Tornado Cash stuff.

The chair of CFTC, he stated that the action aims to ensure America remains the crypto capital of the world.

And the SEC kinda followed in the same s- space and did something separately, although they talked about advanced custody and tokenization measures so that there are rules now for investment advisors and funds to be able to use state trust companies as crypto custodians and allow limited self-custody when no permitted custodian is available.

So this is, I think, fantastic, and if you look at it overall, it's replacing years of a lot of unclear custody treatment, and especially after the CLARITY Act failed.

And then even the Treasury, I think they withdrew their unhosted wallet and mixer surveillance proposals, which came back in 2020 to track all transactions involving self-custodial wallets, and a plan in 2023 to treat crypto mixing as a primary money laundering concern.

And they pretty much said that that was something that was done partly under the Patriot Act, and they cited concerns that the expansive definition of CBC mixing could chill legitimate activity and place a large reporting burden on financial institutions.

So this is, to me, great news [laughs] that all this is happening, and it's crazy that it took kicking Congress out of the picture for things to actually turn around and start moving.

Yeah, I saw a lot of this, and my first thought is if it's definitely a step in the right direction, people have a clear understanding of what the rules are, they can start to make decisions, fairly long-term decisions, on what, how to drive a business or what they wanna do.

On the flip side, if you get a new administration with another Gary Gensler at the top, all of this stuff can be changed in, on day one.

So it ...

The beauty of the CLARITY Act, even if it's imperfect and not great, is it's really hard to change.

So even if a quarter sucks, three-quarter of it is good, and you can move forward w- with a lot of confidence that it's never gonna change or not gonna change much.

That's very different with guidance provided by regulators.

Is it good? Yes, definitely.

But w- if you're pu- putting together a five-year business plan, there's gonna be the back of your mind, like, "We're gonna need to pivot on some things if regulations change." Definitely good, but i- it also seems like they had this in their back pocket ready to roll if CLARITY didn't pass because this was pretty quick relative to everything else in government.

Well, pretty quick, although it's also probably something they've been working on for a year [laughs] too, right? Thinking, "Hey, CLARITY Act is gonna pass, and we're gonna have to do all of this anyways." But yeah, no, it's ...

I guess there ...

I've heard there could be a problem, but at the same time, for it to be overturned, I think it would probably take a lot of discussions to happen too, or a lot of changes to be made.

So yes, could it happen? Is this gonna be the top priority for the next SEC or CFT- CFTC chair? I would hope not, but I guess time will tell.

Yeah, and it also, just the importance of being innovative and quick to market and establishing things, and then it becomes like if you make those changes to the regulation, you're killing jobs and all of the same response that they have to everything else.

So that's a big deal.

Yeah.

So the other thing that I did see too is some of the senators are actually getting involved in trying to help out things as well.