In the SEC’s push to rein in the crypto sector, one question looms large: Is ETH a security? Dan Berkovitz, a former CFTC commissioner and SEC general counsel, and Colin Lloyd, a partner at law firm Sullivan & Cromwell, assess the current state of the regulatory turf war in the U.S., shedding light on some of Washington’s unanswered questions.
Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Stitcher, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform.
Show highlights:
how an asset can be both a commodity and a security
what it means that bitcoin and ether were listed as non-security futures
whether The Merge may have changed regulators’ views on the classification of ETH
who would be responsible for determining that ETH is a security
what Colin and Dan say about ETH being a security or not
what would happen if any regulator, be it the CFTC or SEC, determined that ETH is a security
how and whether DeFi applications should be regulated
why it is important to consider the “human initiative” behind DeFi platforms
the implications of having a technology that allows for the sale of securities without an intermediary
the implications of the SEC’s proposal to change the definition of an exchange
how new technologies were integrated with the regulatory system in the past and how that differs from the current approach of the SEC
the problems of trying to regulate a technology that’s changing so fast
how other jurisdictions have been taking a more proactive approach to regulating digital assets
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Guests:
Dan Berkovitz, former General Counsel at the SEC and former Commissioner at the CFTC.
Previous appearance on Unchained: Can a DeFi Smart Contract Be Regulated? Two CFTC Commissioners Discuss
Colin Lloyd, partner at Sullivan & Cromwell
Previous coverage of Unchained on crypto regulation:
‘Is ETH a Security?’ Why Gary Gensler Couldn’t Give Congress a Straight Answer
Coinbase's Legal Action Against the SEC: How It Will Likely Unfold
Rep. Emmer on Why He Believes Gary Gensler Is a ‘Bad-Faith Regulator’
Is the Government Trying to Kill Off Crypto in the US?
Coinbase’s Top Lawyer Calls SEC Wells Notice a ‘Massive Overreach’
Links
CoinDesk:
U.S. SEC Moves Toward DeFi Oversight as It Reopens Proposed Regulations
SEC Chair Gensler Declines to Say if Ether Is a Security in Contentious Congressional Hearing
Bloomberg: CFTC Chair Rostin Behnam on the Fight to Regulate Crypto
Unchained:
SEC Chair Gary Gensler Avoids Question: ‘Is Ethereum a Security?’
SEC Sues Bittrex, Names Dash, Algorand and Other Tokens ‘Crypto Asset Securities’
Coinbase Seeks to Compel SEC Response to Rulemaking Petition
SEC Asks Court to Deny Coinbase Demand for Crypto Rules
Financial Institutions Hub: SEC Proposal Targets Crypto Exchanges, Trading Platforms, and Brokers
Emmer and Soto Introduce Bipartisan Bill to Provide Regulatory Clarity for Digital Assets
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CFTC Commissioners Dan Berkovitz and Brian Quintenz discuss the difficulties of regulating crypto derivatives and DeFi. Show highlights:
their backgrounds
what the CFTC’s duties are regarding crypto
how the CFTC’s jurisdiction has evolved over the years
why Commissioner Quintenz believes SEC Commissioner Hester Peirce’s safe harbor proposal is “brilliant”
what relationship the CFTC and SEC have when making decisions on crypto assets
why the commissioners believe CFTC’s complaints regarding BitMEX are “well-founded”
why formal regulation for crypto derivatives is unlikely to be produced by the CFTC
why leveraged derivatives products are a “concern” to the CFTC
what makes regulating DeFi platforms so difficult
when it comes to DeFi, who is a natural entity for the CFTC to regulate, if any
whether the CFTC would ever go after DeFi "market participants," who the CFTC also regulates
why smart contracts involving futures could be illegal
how the possibility that smart contracts could be illegal squares with the view that software development is a form of free speech
whether the CFTC could prosecute developers who write smart contracts
whether the CFTC needs to re-write its laws in light of DeFi innovation
why Commissioner Berkovitz thinks the DeFi “winners” will be protocols that focus on meeting regulatory requirements
why the CFTC approved Bitcoin futures in 2017 while the SEC has not yet approved a Bitcoin ETF
how a Bitcoin ETF could solve Bitcoin’s accounting issue, which currently gives companies no upside for adding BTC to its balance sheet
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Episode Links
People
Dan Berkovitz, CFTC Commissioner (Sep 2018+)
CFTC website: https://www.cftc.gov/About/Commissioners/CommissionerDanMBerkovitz/index.htm
Twitter: https://twitter.com/CFTCberkovitz
Brian Quintenz, CFTC Commissioner (Aug 2017+)
CFTC website: https://www.cftc.gov/About/Commissioners/BrianQuintenz/index.htm
Twitter: https://twitter.com/CFTCquintenz
Related Links
CFTC digital asset resources: https://www.cftc.gov/digitalassets/index.htm
Commissioner Berkovitz DeFi speech: https://www.theblockcrypto.com/linked/107769/cftc-commissioner-criticizes-defi-decries-lack-of-intermediaries
Commissioner Quintenz smart contracts/blockchain speech: https://www.cftc.gov/PressRoom/SpeechesTestimony/opaquintenz16
CFTC jurisdiction over digital assets: https://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlostatement010418
CFTC BitMEX complaint: https://www.cftc.gov/PressRoom/PressReleases/8270-20
FTX and Binance remove high leverage: https://decrypt.co/76858/ftx-and-binance-remove-high-leverage-from-exchanges
SEC Commissioner Hester Peirce’s safe harbor proposal: https://www.sec.gov/news/public-statement/peirce-statement-token-safe-harbor-proposal-2.0
Bitcoin futures approval from CFTC in 2017: https://www.businessinsider.com/bitcoin-price-futures-trading-exchanges-cftc-2017-12
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