Regulatory

Crypto Regulatory Update

BitOoda Regulatory Analysis, 12/20/23

Tom Nath

Key Takeaway #1

SEC denies Coinbase’s petition for rulemaking, which requested that the SEC consider and proposed agency rules related to digital assets.

Key Takeaway #2

Fidelity meets with SEC staff to discuss in-kind vs cash creation/redemption mechanics for its spot BTC ETF proposal.

Key Takeaway #3

Under the backdrop of crises such as FTX, the CFTC proposes a new rule designed to force clearinghouses to segregate customers funds.

Key Takeaway #4

A New York enforcement action against KuCoin results in their ceasing operations in the state due to its failure to register and receive a BitLicense.

Heading into the end of the year, regulatory developments in the digital asset space continue apace. Over the last few weeks, the SEC has continued its battle with Coinbase on crypto-specific rules, Fidelity met with SEC staff to discuss its spot BTC ETF application, and the CFTC proposed new rules relating to fund segregation at designated clearing organizations (“DCOs”).

SEC Denies Coinbase Petition for Rulemaking on Digital Asset Regulation

On December 15, SEC Chair Gary Gensler issued a statement on the agency’s denial of Coinbase’s petition to force it to propose rules on the digital asset markets. Gensler provided three reasons for the denial: “First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.”

While this is not an unexpected development, it is another disappointing outcome for the crypto industry as it continues to strive for regulatory clarity in the US. Predictably, Coinbase quickly petitioned a federal court to review the SEC’s denial.

Fidelity Meets with SEC to Discuss its Spot BTC ETF Proposal

According to an SEC memo, agency staff met with representatives from both CBOE and Fidelity on December 7 to discuss the mechanics of Fidelity’s spot BTC ETF model. Among the topics discussed were Fidelity’s in-kind creation and redemption model, as detailed in a Fidelity presentation.

Fidelity’s meeting was on the heels of a meeting between BlackRock and SEC staff on November 28 to discuss BlackRock’s own spot BTC ETF proposal, including the issue of in-kind creation and redemption. Subsequently, BlackRock submitted a revised ETF application to provide for cash creations/redemptions. The cash vs. in-kind creation/redemption issue is one of the key items on which the SEC and industry are engaging ahead of a potential spot BTC ETF approval in 2024

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Heading into the end of the year, regulatory developments in the digital asset space continue apace. Over the last few weeks, the SEC has continued its battle with Coinbase on crypto-specific rules, Fidelity met with SEC staff to discuss its spot BTC ETF application, and the CFTC proposed new rules relating to fund segregation at designated clearing organizations (“DCOs”).

SEC Denies Coinbase Petition for Rulemaking on Digital Asset Regulation

On December 15, SEC Chair Gary Gensler issued a statement on the agency’s denial of Coinbase’s petition to force it to propose rules on the digital asset markets. Gensler provided three reasons for the denial: “First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.”

While this is not an unexpected development, it is another disappointing outcome for the crypto industry as it continues to strive for regulatory clarity in the US. Predictably, Coinbase quickly petitioned a federal court to review the SEC’s denial.

Fidelity Meets with SEC to Discuss its Spot BTC ETF Proposal

According to an SEC memo, agency staff met with representatives from both CBOE and Fidelity on December 7 to discuss the mechanics of Fidelity’s spot BTC ETF model. Among the topics discussed were Fidelity’s in-kind creation and redemption model, as detailed in a Fidelity presentation.

Fidelity’s meeting was on the heels of a meeting between BlackRock and SEC staff on November 28 to discuss BlackRock’s own spot BTC ETF proposal, including the issue of in-kind creation and redemption. Subsequently, BlackRock submitted a revised ETF application to provide for cash creations/redemptions. The cash vs. in-kind creation/redemption issue is one of the key items on which the SEC and industry are engaging ahead of a potential spot BTC ETF approval in 2024

CFTC Proposes DCO Customer Fund Segregation Rule

In the aftermath of the FTX meltdown and other crypto-related bankruptcies leading to customer losses, the CFTC voted on December 13 to propose a new rule that would require DCOs to segregate clearing member funds from the clearinghouse’s own funds. The decision to propose the rule passed by a 3-2 vote.

Unlike FCMs, DCOs have not been subject to comprehensive customer fund segregation rules with respect to both individual and FCM clearing member funds. Commissioner Johnson expressly acknowledged that the collapse of FTX, which was pursuing a novel direct clearing model through LedgerX, was a motivating factor in bring the proposal forward for a vote by the Commissions

New York DFS Blocks KuCoin from Operating in State

KuCoin agreed to a $22m settlement with the State of New York and will cease operations in the state, after the NY Attorney General sued the exchange in March for failing to register with the state. This is a rare example of a NYDFS enforcement action against a firm for operating without a New York BitLicense. There are currently 24 entities listed on the DFS website that have been approved for Virtual Currency Licenses.

While we expect a flurry of market activity in the new year with the expected approval of the first Bitcoin ETF, we would find it difficult to forecast significant movement on other key regulatory initiatives in the first half of 2024

‍

Disclosures

Purpose This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda .io. Analyst Certification Tom Nath, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation. General Disclosures Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http ://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using services. BitOoda its brokerage makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. BitOoda Technologies, LLC is a member of FINRA. “BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc. Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda

Heading into the end of the year, regulatory developments in the digital asset space continue apace. Over the last few weeks, the SEC has continued its battle with Coinbase on crypto-specific rules, Fidelity met with SEC staff to discuss its spot BTC ETF application, and the CFTC proposed new rules relating to fund segregation at designated clearing organizations (“DCOs”).

SEC Denies Coinbase Petition for Rulemaking on Digital Asset Regulation

On December 15, SEC Chair Gary Gensler issued a statement on the agency’s denial of Coinbase’s petition to force it to propose rules on the digital asset markets. Gensler provided three reasons for the denial: “First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.”

While this is not an unexpected development, it is another disappointing outcome for the crypto industry as it continues to strive for regulatory clarity in the US. Predictably, Coinbase quickly petitioned a federal court to review the SEC’s denial.

Fidelity Meets with SEC to Discuss its Spot BTC ETF Proposal

According to an SEC memo, agency staff met with representatives from both CBOE and Fidelity on December 7 to discuss the mechanics of Fidelity’s spot BTC ETF model. Among the topics discussed were Fidelity’s in-kind creation and redemption model, as detailed in a Fidelity presentation.

Fidelity’s meeting was on the heels of a meeting between BlackRock and SEC staff on November 28 to discuss BlackRock’s own spot BTC ETF proposal, including the issue of in-kind creation and redemption. Subsequently, BlackRock submitted a revised ETF application to provide for cash creations/redemptions. The cash vs. in-kind creation/redemption issue is one of the key items on which the SEC and industry are engaging ahead of a potential spot BTC ETF approval in 2024

CFTC Proposes DCO Customer Fund Segregation Rule

In the aftermath of the FTX meltdown and other crypto-related bankruptcies leading to customer losses, the CFTC voted on December 13 to propose a new rule that would require DCOs to segregate clearing member funds from the clearinghouse’s own funds. The decision to propose the rule passed by a 3-2 vote.

Unlike FCMs, DCOs have not been subject to comprehensive customer fund segregation rules with respect to both individual and FCM clearing member funds. Commissioner Johnson expressly acknowledged that the collapse of FTX, which was pursuing a novel direct clearing model through LedgerX, was a motivating factor in bring the proposal forward for a vote by the Commissions

New York DFS Blocks KuCoin from Operating in State

KuCoin agreed to a $22m settlement with the State of New York and will cease operations in the state, after the NY Attorney General sued the exchange in March for failing to register with the state. This is a rare example of a NYDFS enforcement action against a firm for operating without a New York BitLicense. There are currently 24 entities listed on the DFS website that have been approved for Virtual Currency Licenses.

While we expect a flurry of market activity in the new year with the expected approval of the first Bitcoin ETF, we would find it difficult to forecast significant movement on other key regulatory initiatives in the first half of 2024

‍

Disclosures

Purpose This research is only for the clients of BitOoda. This research is not intended to constitute an offer, solicitation, or invitation for any securities and may not be distributed into jurisdictions where it is unlawful to do so. For additional disclosures and information, please contact a BitOoda representative at info@bitooda .io. Analyst Certification Tom Nath, the research analyst denoted by an “AC” on the cover of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships. Conflicts of Interest This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation. General Disclosures Any information (“Information”) provided by BitOoda Holdings, Inc., BitOoda Digital, LLC, BitOoda Technologies, LLC or Ooda Commodities, LLC and its affiliated or related companies (collectively, “BitOoda”), either in this publication or document, in any other communication, or on or through http ://www.bitooda.io/, including any information regarding proposed transactions or trading strategies, is for informational purposes only and is provided without charge. BitOoda is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of BitOoda’s sales and marketing efforts as an introducing broker and is incidental to its business as such. BitOoda seeks to earn execution fees when its clients execute transactions using services. BitOoda its brokerage makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. BitOoda undertakes no duty to amend, correct, update, or otherwise supplement the Information. The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. The Information is not a recommendation to engage in any transaction. The digital asset industry is subject to a range of inherent risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or digital assets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or digital assets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. All derivatives brokerage is conducted by Ooda Commodities, LLC a member of NFA and subject to NFA’s regulatory oversight and examinations. However, you should be aware that NFA does not have regulatory oversight authority over underlying or spot virtual currency products or transactions or virtual currency exchanges, custodians or markets. BitOoda Technologies, LLC is a member of FINRA. “BitOoda”, “BitOoda Difficulty”, “BitOoda Hash”, “BitOoda Compute”, and the BitOoda logo are trademarks of BitOoda Holdings, Inc. Copyright 2023 BitOoda Holdings, Inc. All rights reserved. No part of this material may be reprinted, redistributed, or sold without prior written consent of BitOoda

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Crypto Regulatory Update

BitOoda Regulatory Analysis, 12/20/23

Key Takeaway #1

Key Takeaway #2

Key Takeaway #3

Key Takeaway #4

SEC Denies Coinbase Petition for Rulemaking on Digital Asset Regulation

Fidelity Meets with SEC to Discuss its Spot BTC ETF Proposal

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Table of contents

Research By

SEC Denies Coinbase Petition for Rulemaking on Digital Asset Regulation

Fidelity Meets with SEC to Discuss its Spot BTC ETF Proposal

CFTC Proposes DCO Customer Fund Segregation Rule

New York DFS Blocks KuCoin from Operating in State

Disclosures

Table of contents

Research By

SEC Denies Coinbase Petition for Rulemaking on Digital Asset Regulation

Fidelity Meets with SEC to Discuss its Spot BTC ETF Proposal

CFTC Proposes DCO Customer Fund Segregation Rule

New York DFS Blocks KuCoin from Operating in State

Disclosures

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