A new working group, spearheaded by senior employees of Ripple and Coinbase, is going to advise United States regulators on crypto-friendly policies. But congresspeople are too busy preparing for the upcoming elections, which means that U.S. crypto firms will have to continue hula-hooping through state-by-state regulations in the near future.
Earlier this month, a D.C.-based advocacy group called the Blockchain Association, representing a number of high-profile cryptocurrency firms, launched a working group tasked with pushing for a U.S.-wide regulatory framework. Called the Market Integrity Working Group, the new entity is co-chaired by Breanne Madigan, head of global institutional markets at Ripple; and Rachel Nelson, Coinbase’s senior director and associate general counsel. So what is it, exactly?
Ex-Wall Street execs will advise lawmakers on crypto regulationThe Blockchain Association’s Market Integrity Working Group was launched on Jan. 23. Both of its co-chairs are Wall Street veterans — Madigan worked at Goldman Sachs for 15 years, while Nelson spent five years at J.P. Morgan.
When asked about the structure of Market Integrity Working Group, Blockchain Association’s communications advisor Graham Newhall clarified to Cointelegraph, “It is just that, a working group, under the umbrella of the Blockchain Association.” He added:
“It is one of several such groups we’ve commissioned to work on specific issues relevant to the crypto economy.”
The advocacy group has launched various working groups on proof-of-stake networks (also co-chaired by Rachel Nelson), stablecoins, security laws, custody, and other industry-related topics in the past. Working groups “are simply a vehicle to maximize the expertise of Association member companies,” Newhall said, adding:
“They do not represent a separate entity, lobbying on its own behalf, rather we task expert members to study particular problems facing the crypto industry and potential regulations. The findings of these groups inform our conversations with regulators and lawmakers.”
As Newhall further explained to Cointelegraph, the Market Integrity Working Group co-heads were “chosen in discussion with Association members, pertaining to those individuals and companies that have a particular interest or expertise on a chosen subject.” The Blockchain Association has 22 member organizations, including Circle, Kraken, Ripple, Coinbase and 0x, among other U.S. cryptocurrency firms.
U.S.-wide crypto regulation: A distant, but largely unavoidable scenarioAs leaders of the newly assembled Market Integrity Working Group, Nelson and Madigan are planning to advise regulators on how public policies can stimulate the cryptocurrency industry, specifically improving market integrity and providing consumers “the confidence they deserve.”
Notably, the organization highlights the “labyrinthine patchwork of state-by-state” regulations in the U.S. as one of the main obstacles for crypto businesses that ultimately results in “significant barriers to entry for new exchanges” and “a complicated compliance burden for existing exchange.” Market Integrity Working Group concludes:
“Consumers and cryptocurrency exchanges deserve a clear regulatory framework, the establishment of which would ultimately enhance market integrity and drive consumer adoption of cryptocurrencies.”
However, the working group is aware that U.S.-wide regulation is not likely to be adopted in the near future. “We don’t think something like that is likely in the near term, especially in an election year,” Newhall told Cointelegraph.
Experts confirm that federal crypto regulation is not exactly a pressing issue for Congress. “In the short term, this is an unlikely scenario,” Carol Goforth, law professor at the University of Arkansas, argued in an email conversation with Cointelegraph. According to her, in the near term, the legislators were first of all focused on the impeachment hearing and will now switch their focus to the upcoming 2020 presidential elections:
“One way or another, the looming 2020 election cycle is likely to take precedence. However, in the long run, it may as a practical matter be necessary for legislative intervention.”
However, Goforth notes, appropriate legislation would stop “a colossal waste of resources” that is happening due to U.S. regulators dealing with crypto on a case-by-case basis:
“Currently, the SEC is spending significant sums of money litigating the question of whether cryptotokens with a functioning purpose other than serving as a currency-substitute are securities at all. This is playing out in both the Kik litigation and Telegram ICO dispute. Even if the courts agree with the agency’s analysis (a battle that may have to be fought in multiple circuits unless and until the Supreme Court is willing to weigh in), that still leaves a set of regulatory requirements that were never designed with interests like cryptoassets in mind.”
Andrew Mount, litigation associate at Bressler, Amery & Ross, P.C., suggests that “we are headed towards federal crypto regulation” as the number of major cases involving crypto keeps piling up, although he also stresses that “it is anyone’s guess when it will happen.” He went on to elaborate:
“High profile cases like Facebook’s Libra and Telegram’s Gram push crypto into the national spotlight. With the crypto space rapidly expanding (and more “name brand” companies getting involved), Congress will face increased public pressure to enact legislation.”
Furthermore, Market Integrity Working Group’s proposed legislation “could expand the Commodity Futures Trading Commission’s (CFTC) authority to include the regulation and oversight of digital commodity exchange markets,” as per the blog post written by Madigan and Nelson.
When asked why the working group would pick the CFTC over other major U.S. financial regulators like the Securities and Exchange Commission, Graham said that “the CFTC has a long history and expertise in monitoring the health and integrity of markets, so we think they are a good point of focus.” He added that for them, the SEC is also quite an important entity, but that the primary focus will be on the CFTC. As Goforth argues, expanding the SEC’s purview instead would make more sense:
“They have not had to develop standards for disclosure, or exemptions, and seem less well positioned to protect potential crypto entrepreneurs, markets, or purchasers. Amending the securities laws to specifically cover cryptoassets, and directing the SEC to adopt exemptions that protect persons engaged in the creation and distribution of such assets in the absence of fraud, would seem to me to be a more efficient approach.”
The establishment of a crypto-focused working group that aims to collaborate with congresspeople is still a healthy development for the industry, both experts agree. Goforth believes that lobbying is very effective in educating legislators, adding that the crypto market is still being stigmatized: “The real challenge will be to convince them that appropriate regulation of cryptoassets is in the best interests of their constituents.” Similarly, Mount told Cointelegraph that regulators are still cautious about the crypto markets:
“The primary issue holding back progress at the federal level is regulators’ lack of trust in the crypto markets. The SEC made this evident in their denial of Bitwise’s bitcoin ETF application in October 2019. The denial reflected the SEC’s uncertainty in the integrity of the bitcoin market. Because the Market Integrity Working Group’s mission addresses this core concern, it should serve as an effective guide for future Congressional action.”
So, what’s the plan?As for now, the Market Integrity Working Group has yet to produce a specific roadmap. “The group is new and will work on a detailed strategy in the weeks and months to come,” Newhall said. “We will be adding members to the group to respond to the sustained interest the launch has garnered thus far.”
According to Newhall, there are several lawmakers advocating positive crypto regulation, namely the co-sponsors of the Token Taxonomy Act, as well as representatives DelBene and Schweikert, who recently introduced a bill to exempt personal cryptocurrency transactions from taxation for capital gains — so, convincing the Congress might not be so difficult after all.
While the new working group headed by Ripple and Coinbase execs seems determined to convince U.S. lawmakers that a clear regulatory framework for cryptocurrencies is long due — and the legal wrangling of Telegram’s Gram clearly illustrates that point — the Congress won’t get to the case until the elections are over, experts predict.
It means that the U.S. will most likely continue to fall behind in terms of federal crypto regulation throughout 2020. In the last month alone, the European Union and Singapore started overseeing crypto assets under new directives, joining the ranks of Japan, Switzerland, Malta and other countries that have made up their minds about cryptocurrencies and blockchain. On the positive side, the working group will have more time to research and prepare their arguments for the lawmakers, some of whom are already championing crypto-friendly regulatory measures.