Law Decoded: Crypto cities, investor protection nation, Nov. 8–15

As the U.S. federal government — acting through its Securities and Exchange Commission — continues to valiantly protect investors and the public interest from the grave dangers of a spot Bitcoin exchange-traded fund, one major American city after another begin embracing or at least exploring the potential of crypto and blockchain technology to improve various aspects of city finance, administration and residents’ monetary well-being. Following the lead of Miami, New York, Tampa and Jackson, Tennessee, it is now Philadelphia that is looking into the ways to implement blockchain solutions in city government.

The hope is that a series of city governments’ successful ventures into the crypto space will eventually make the federal government adopt a more “municipal” perspective.

Below is the concise version of the latest “Law Decoded” newsletter. For the full breakdown of policy developments over the last week, register for the full newsletter below.

Spot Bitcoin ETF denied

Last Friday, following two deadline extensions, the SEC formally disapproved asset manager VanEck’s spot Bitcoin exchange-traded fund application that was first filed in March 2021. The regulator maintained that the applicant failed to demonstrate the existence of a “comprehensive surveillance-sharing agreement with a regulated market of significant size related to the underlying or reference Bitcoin assets,” which is essential for preventing manipulation and fraud.

In the SEC’s view, surveillance-sharing is sufficient in the case of the Chicago Mercantile Exchange’s BTC futures market but is not up to standard when it comes to spot markets that underlie the bulk of CME’s Bitcoin futures’ pricing. A recent letter from Representatives Emmer and Soto highlights the limitations of the agency’s argument well.

Commissioner Crenshaw on DeFi

In an article published in the International Journal of Blockchain Law, SEC Commissioner Caroline Crenshaw has shared her thinking on some of the regulatory issues around the domain of decentralized finance. On the most fundamental level, she believes that DeFi products may be securities and should be viewed according to applicable securities laws.

The commissioner’s key thesis comes down to the need for DeFi market participants to come forward and voluntarily comply with securities laws, specifically those around risk disclosure. She also warned that those who fail to comply could become subject to the SEC enforcement action and incur heavy penalties.

CBDC watch

People’s Bank of China governor Yi Gang discussed the plans for the digital yuan’s cross-border expansion, while the managing director of the Monetary Authority of Singapore revealed a strong retail focus of the nation’s prospective CBDC. Over in Russia, an updated timeline for the release of the digital ruble trial was revealed, with a prototype platform expected to be ready for testing by early 2022. Concurrently, Russian lawmakers have begun preparing the legislative base for the digital currency’s nationwide adoption. Meanwhile, the Bank of England gave itself ample time to consider all the pros and cons of implementing the digital pound, marking “the second half of the decade” as the earliest time for the possible launch.