Strange Cryptos Regulatory Path

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About 63% of Squares $ 9.7 billion ($ 13.3 billion) of revenue for the six months to June 30 came from bitcoin, according to Squares’ latest filings with the United States Securities and Exchange Commission.

Not only is Square heavily dependent for its income from trading bitcoin on its platform, it has invested $ 220 million in bitcoin. Additionally, its founder, Jack Twitter Dorsey, says he’s building an open platform to create a decentralized exchange for bitcoin.

Throwing the red carpet in Square seems hypocritical as it is well known that two bitcoin miners, Mawson Infrastructure and Iris Energy, are listed on Nasdaq after realizing it would be futile to approach ASX.

The other obvious area of ​​regulatory inconsistency is the attitude of ASICs towards Bitcoin ETFs.

These trade in many jurisdictions around the world, including Canada and Europe. The new SEC chairman, Gary Gensler, has yet to give them the green light and that seems to have fueled the reluctance of ASICs to take the plunge.

This has prompted many retail investors to seek their bitcoin outside of Australia, a move that waives legal protections afforded to those operating in that jurisdiction.

For example, many Australians are now buying and trading their bitcoin through the Chinese crypto exchange Binance, whose activity has been banned in the UK.

It is the perfect transition to another area filled with contradictions in the regulation of crypto exchanges.

During a committee hearing last Friday, Braggs’ questioning of ASIC officials underscored the very different attitude of different regulators towards activities undertaken on the stock exchanges.

No idea about bitcoin

Financial intelligence agency AUSTRAC applies its know-your-your-customer regime to users of crypto exchanges domiciled in Australia, while ASIC loses interest entirely in what they do.

As AUSTRAC shields the economy from money laundering and terrorist financing, the securities regulator is struggling to determine how to define the main cryptocurrency, bitcoin.

At an industry forum last week, an ASIC official made comments that showed the organization didn’t really understand how bitcoin works, when he said the bitcoin code could be amended.

It is possible to change the bitcoin code. But for that to happen, one person or entity would need to control more than half of all bitcoin mining.

It is unlikely that anyone will be able to do this given that it would take enough electricity to power Argentina. Either way, doing so would be a self-destructive exercise as it would destroy the main attraction of bitcoins, the fact that there will be a finite amount of it.

The ASIC official said the regulator does not support the classification of crypto as a commodity, which is how it is treated in other jurisdictions. Instead, ASIC wants to treat it as a separate stand-alone asset.

This position has implications for the creation of a retail bitcoin ETF. If bitcoin is a commodity, the structure that will need to be used for retail products will be a managed investment program.

This shouldn’t be a problem for ASIC given that the world’s first gold ETF was created by an Australian, Graham Tuckwell. Managed investments require the creation of a mutual fund to turn them into financial products.

The ASIC official told the industry meeting last week that the crypto was unlike anything the regulator had ever seen before. But is this a reason to delay the search for a viable regulatory approach to protect consumers?

Australian regulators and policymakers fail to understand that there are huge sums of money to be made and thousands of jobs to be created through properly calibrated regulation of the crypto trade.

Crypto-driven opportunities

A report released this week by financial services consultant Oliver Wyman outlines the range of opportunities for traditional financial services firms involved in securitization, financial structuring, brokerage and custody of assets.

The report, Digital Assets Going Mainstream, identified six areas where opportunities exist for companies focused on crypto assets.

Custodians are important to the future of the crypto market infrastructure, and there are opportunities for companies with the right institutional confidence, balance sheet strength, and legal and technical know-how. -he declares.

Financial analysis

Another area in which financial institutions can participate is the development of trading platforms and trading related platforms and infrastructure.

Wealth management products that provide exposure to the crypto market represent a major opportunity that depends on changing regulations. The development of this opportunity would undoubtedly make it possible to unlock significant capital.

As more sophisticated trading companies enter the crypto market, the demand for major crypto brokers will likely increase.

Outside of trading and investing, payment and settlement solutions are another area where financial institutions can deploy digital assets. The potential here is for companies to deploy a fungible digital token which is an instrument representing a claim against an institution with a strong balance sheet and combining that with an open network that participants can easily integrate into.

Finally, financial institutions can develop new financial products by combining the technical functionalities enabled by digital assets with innovation in financial engineering.

For example, tokenization, a feature enabled by digital assets, can enable the creation of new derivatives where counterparty risks are more visible and manageable, and liquidity potentially unlocked through splitting and pooling.

Of course, if Dorsey achieves her goal of facilitating non-depository, unlicensed and decentralized financial services, there could be an unprecedented disruption to the global banking industry.

But this grand vision should not distract from the many opportunities for traditional financial services companies to reap significant business opportunities by working within a well-regulated crypto ecosystem.

Fixed: An earlier version stated that changing the bitcoin code would require owning half of the world’s bitcoin. In fact, it requires the control of half of the world’s coin miners.

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