I was first introduced to cryptocurrency in 2013 during a closed-door meeting in Zurich. Although I had heard of Bitcoin, I hadn't given it much attention. At this meeting, an enthusiastic young man from Singapore delivered a presentation on Bitcoin, passionately describing its potential to revolutionize the world of finance. Many attendees, myself included, were skeptical and found his arguments perplexing. I recall one participant asking where he envisioned Bitcoin in five years. Without hesitation, he predicted a value of $100,000, even though it was trading at just $230 at the time.
While Bitcoin never reached $100,000, it surged towards that direction, peaking close to $70,000. Inspired by his fervor, I was tempted to invest $10,000 in Bitcoin, but ultimately refrained. Over the years, I observed Bitcoin's remarkable ascent but remained uninvolved until I discovered XRP in August 2020. Learning about its potential impact on the financial world captivated me.
What intrigued me further was the promise and potential of the foundational technology: blockchain. While I remain skeptical about many related projects, truly understanding this emerging asset class demands considerable daily research. I devote three to four hours daily to studying, believing it might underpin the fourth industrial revolution.
A landmark decision came from a federal appeals court, stating that the SEC had erred in rejecting Grayscale's application to transition its trust into a Bitcoin spot exchange-traded fund (ETF). The three judges unanimously declared, "The denial of Grayscale's proposal was arbitrary and capricious because the Commission failed to explain its differing treatment of similar products." This paves the way for a Bitcoin spot ETF, with eight such applications, including a highly anticipated one from BlackRock, currently pending approval.
A Bitcoin ETF would allow investors to access the asset directly from their brokerage account, sidestepping complexities like custody and safekeeping. The potential for fees also excites ETF creators.
This development may herald a significant uptrend in digital assets. For years, the primary roadblock for this market has been the SEC's combative stance. Their opposition to a spot Bitcoin ETF is but one instance.
In September 2021, the SEC targeted Coinbase, alleging its planned "Lend" feature was an unregulated security. This stance was puzzling since Coinbase had detailed the Lend feature in its IPO documentation, which the SEC approved. By March, the SEC sent Coinbase a notice regarding potential security violations, a major setback for the renowned exchange. In retaliation, Coinbase accused the SEC of unfair and inconsistent engagement on digital assets.
The SEC's motives for hostility can be debated, but the undeniable truth is that this regulatory onslaught has hampered the entire market. Yet, the tide may be shifting rapidly. A series of court rulings have damaged the SEC's credibility, notably after they lost a landmark case against Ripple Labs.
In the backdrop, legislative efforts are under way, mostly unnoticed by media. Two committees in the House of Representatives are working on the "Financial Innovation and Technology for the 21st Century Act" (FIT21). If ratified, this legislation would bring much-needed clarity to the US blockchain industry by defining terms like blockchain, decentralized networks, digital asset issuers, and more.
Several other significant events have unfolded:
The BIS unveiled an international framework for tokenized assets and a unified global ledger system for CBDCs.
The IMF revised its stance on cryptocurrencies, highlighting their potential benefits.
Fed Chairman Jerome Powell confirmed ongoing discussions about the aforementioned legislation.
Noticing Wall Street's actions underscores this shift:
JP Morgan Chase activated euro-denominated payments for its JPM Coin.
BlackRock, the world's premier asset manager, lodged an application with the SEC for the first Bitcoin spot ETF.
The Credit Suisse and Deutsche Bank-supported platform Taurus has partnered with crypto Polygon.
The EDX crypto exchange, supported by Fidelity, Charles Schwab, and Citadel, is operational.
The Committee on Capital Markets Regulation criticized the SEC's regulatory stance on crypto.
In summary, the regulatory environment seems to be evolving rapidly. While the past couple of years have been challenging for digital assets, a turning point appears imminent.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and multi-billion dollar portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office, and a hedge fund.