Happy New Year from BitOoda! As 2024 gets underway, we wanted to share our thoughts and preliminary forecasts on some key regulatory events in the crypto and AI sectors that could affect our mining and data center clients and partners this year.
SEC Expected to Approve Spot BTC ETFs
The SEC is set to decide on January 10 whether to approve or reject the wave of spot Bitcoin ETF proposals. The agency gave companies a December 29, 2023 deadline to file any final amendments. BlackRock, VanEck, Valkyrie Investments, Bitwise, Invesco, Fidelity, WisdomTree and Ark Investments/21Shares all filed amendments, providing new details regarding arrangements with market makers and fees.
For example, in its December 29 amended filing, BlackRock specified that JP Morgan and Jane Street would be authorized participants, which are institutions that manage the creation and redemption of ETF shares in the primary market by adjusting the number of outstanding ETF shares, which helps keep an ETF’s price aligned with the value of its underlying assets. Similarly, Fidelity disclosed that it would also use JP Morgan and Jane Street as authorized participants, and also that its ETF would have a fee of 39 basis points.
When the SEC approves a spot Bitcoin ETF, trading may begin immediately. From a regulatory perspective, while the industry has been at odds with the SEC’s approach to policing crypto markets (and specifically its refusal to approve a spot Bitcoin ETF), the agency’s eventual approval will cement its role as the top crypto regulator in the US.
US Crypto Enforcement Will Continue
In the wake of US regulatory actions against Binance and Coinbase in 2023 and an active pace of enforcement from the SEC, CFTC, and FinCEN (among other US agencies), we expect the “regulation by enforcement” approach to continue in 2024. While numerous legislative efforts continue to be part of the discussion on Capitol Hill, there is still no law on the books that specifically applies to the digital asset space in the US, unlike a growing number of overseas jurisdictions. We assess this will prompt US companies to continue to look at overseas expansion or migration, and will leave the US regulatory agencies with little choice but to apply decades-old laws to crypto via the enforcement mechanisms within their current authorities
Regulators and Legislators Will Continue to Grapple with AI
As we highlighted last month, the European Union is the first major legislative body to agree upon initial rules governing the creation and use of AI models. Under the EU AI Act (the “Act”), all general purpose AI systems (e.g., ChatGPT) will be subject to some level of transparency requirements. The Act is expected to pass this year and go into effect next year. While the Act will provide clarity for AI innovators who are developing new models, it has also been criticized as being heavy handed at such an early stage of AI’s mainstream adoption.
While the US Congress has not passed any similar legislation, both the executive and legislative branches of the government signaled that they are closely monitoring AI innovation. In October, the White House issued an executive order setting forth standards for the development and use of AI models that were generally aligned with the principles of the EU’s Act. The order also included reporting thresholds for models and data center/compute clusters operating above certain capacities (i.e., floating point operations).
In addition, in 2023, multiple members of Congress proposed legislation aimed at understanding the broader role of AI in society and the ways in which different jurisdictions are tackling AI regulation
We expect US legislators to remain active in studying AI and will be closely following proposed legislation aimed at setting standards for AI model development and use. We will also be monitoring proposed rules or legislation that impose obligations on data centers and other compute infrastructure.