Group of Crypto / Blockchain Industry Leaders Addresses SEC on Fund Innovation & Digital Assets
A letter authored by a group of prominent cryptocurrency / blockchain advocates was forwarded to the Securities and Exchange Commission (SEC) this week. The letter was addressed to Dalia Blass, Director of the Division of Investment Management at the SEC, specifically mentioning the Commission’s Staff Letter, “Engaging on Fund Innovation and Cryptocurrency-related Holdings,” dated January 18, 2018.
In the Commission letter from January, Blass stated “there are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to retail investors.” The Commission letter was responding to requests for cryptocurrencies and cryptocurrency-related products and funds. Blass then went on to bullet out five different areas where the SEC maintains concern. These five areas included: valuation, liquidity, custody, arbitrage (for ETFs) and potential for manipulation.
The five authors of this most recent letter, share their opinion on “critical considerations for handling cryptocurrency regulation that were not addressed in other comment letters.” The authors include: Christopher Allen, Bryan Bishop, Angus Champion de Crespigny, Gavin Fearey and Caitlin Long.
The group states:
“The unique strengths of digital assets arise from the fact that they are individually controlled bearer instruments that are designed to settle gross and in near-real time within their own settlement environments (namely, on their blockchain base layers). In many cases they offer improved transparency and stronger resilience relative to traditional securities.”
Additionally, the authors “caution against applying rules to digital assets in ways which do not reflect their strengths.”
“We should leverage the technology of this asset class to protect investors in ways not previously possible. While the technology behind digital assets was created to enable individuals to control their own assets and for parties to trust the movement of those assets without confirming the identity of the counterparty, there are many additional features of the technology that leverage cryptography to achieve unique capabilities.”
Crypto custody has been a nagging concern for both regulators and industry participants. There are emerging solutions but the authors believe regulators should look more towards technology than policy in tackling some of these hurdles.
“… we can establish secure models for digital assets that protect both the investor and the solvency of major financial institutions without sacrificing the convenience and innovation that the asset class can provide.”