The Securities and Exchange Commission (SEC) has issued a subpoena to PayPal relating to its PYUSD stablecoin, launched in August 2023. Is this a precursor to action, or a sign that the SEC is on a fact-finding mission? Stablecoins are a special type of cryptocurrency designed to maintain parity with a real-world asset, while taking advantage of crypto’s fast settlement rails but without the volatility. There are estimated to be around 200 stablecoins in circulation but there has long been concern and criticism around their security and use, culminating with the spectacular failure of stablecoin Terra in May 2022. Regulators are unsurprisingly cautious, but PYUSD is a stablecoin approved by the New York Department of Financial Services (DFS) and is the ideal case study for the SEC to learn more about the use cases and functions of this special class of crypto. There are also considerations for central banks that are exploring their own stablecoins, known as Central Bank Digital Currencies (CBDCs). PYUSD will eventually be available to PayPal’s 431M users and could present a threat to the financial stability of nations. Making the effort to understand it reduces risk and offers opportunities for the future.
The UK government’s recent publication of proposals for regulating the crypto ecosystem marks another key step in the country’s efforts to provide clarity for businesses engaged in the space. Unlike the United States, where a patchwork of state and federal regulators and lack of legislation has muddied the waters, the UK and its European neighbors are taking a more streamlined approach to establishing crypto- and digital-friendly regimes. The UK’s latest announcement on the regulation of fiat-backed stablecoins is mirrored by the European Banking Authority’s (EBA) proposed minimum capital and liquidity requirements for issuers of stablecoins and other types of digitized tokens. The Financial Services and Markets Act passed by the UK in June 2023 brings crypto assets including NFTs into the scope of traditional financial service regulation, while in Europe the Markets in Crypto-Assets Regulation (MiCA) lays out specific rules on the transparency, disclosure, authorization, and supervision of transactions. Should the US be looking across the Atlantic for inspiration to provide certainty and boost its digital asset economy?
The investment industry is awaiting the SEC’s decision on approval of the first crypto exchange-traded fund (ETF), and the advance listing of Blackrock’s Bitcoin ETF on the Depository Trust & Clearing Corporation (DTCC) suggests that this is edging ever closer. A Nasdaq ticker, IBTC, has been allocated to Blackrock’s product, which is standard practice when launching a new security. It has been a long journey… The first application for a Bitcoin ETF was turned down in 2014, followed by a dozen other unsuccessful bids. ETFs based on Bitcoin futures have been listed since 2021, but to date there have been no actual (spot-priced) ETFs approved. However, now it seems the maturing crypto industry has allayed some of the SEC’s historical concerns around low liquidity and industry transparency. If Blackrock is the first to be approved, they will be closely followed by others.
It hasn't all been smooth sailing for the Securities and Exchange Commission (SEC) in their case against payments innovators Ripple. The latest wave to break has been the dropping of charges against Ripple’s CEO, Brad Garlinghouse and Executive Chairman, Chris Larsen. This is the latest victory for Ripple in the progression of the SEC’s case against them. In 2020, the firm was accused of securities violations around the unregistered sale of its XRP token. The SEC argued that XRP was an unregistered security, while Ripple maintains that it is a commodity. Ripple is a payments system used by banks and financial institutions, and the XRP token enables real-time settlements, currency exchange and remittances. In July 2023, U.S. District Judge Analisa Torres ruled that Ripple did not violate federal securities law by selling its XRP token on public exchanges. The crypto industry in the United States is patiently awaiting more regulation in the future.
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