In a recent seminar with Court Judge Sarah Netburn, Dugan Bliss, a senior adjudicator at the US Securities and Exchange Commission, argued that the agency has not yet made a formal position on the regulatory status of Bitcoin and Ethereum. Bitcoin looks more certain, however, the status of ETH is being disputed as is the case with XRP.
Ethereum could still be classified as a security
“So I want to make clear that this is my understanding of the current situation and I don’t want to be overly technical, but the SEC, itself, my understanding, it has not taken an official position. There is no action that it took to say Bitcoin is not a security, Ether is not a security.”
While former SEC chairman Jay Clayton has repeatedly stated that Bitcoin is not a security, there is less regulatory certainty over Ethereum.
Bill Hinman, former head of the SEC’s Corporate Finance Division, issued a statement of approval on the sale of Ether and non-securities offers just months before the end of his term in 2018.
Bliss stated that Hinman’s speech does not necessarily reflect the regulator’s stance on Ethereum:
“Now, there was a speech by a high-ranking person who said that to him that’s what it looked like but there has been no action letter, no enforcement action, none of the official ways in which the SEC takes a position on that matter that has occurred.”
However, the upcoming SEC chairman Gary Gensler has made it clear that both Ether and XRP are non-compliant securities in an interview with the New York Times:
“There is a strong case for both of them — but particularly Ripple — that they are non-compliant securities.”
Notably, Gensler confirmed that he sees Bitcoin as a commodity during his recent congressional hearing:
“So I think at the SEC it’s really to the extent somebody is offering an investment contract and security that’s under the SEC’s remit and exchanges that operate there. […] If not, it’s a commodity as Bitcoin has been deemed.”
Unlike Bitcoin, Ethereum pre-mined a significant portion of the money prior to holding the initial coin offering (ICO).
The city of Jackson is shaping up to be Tennessee’s cryptocurrency hub. In the coming weeks, Mayor Scott Conger will form a blockchain task force to explore how to adapt the novel asset class.
Following Miami’s example, Jackson mayor Scott Conger plans to integrate cryptocurrencies into his city
Conger told that his plan is to encourage the use of cryptocurrency by incorporating it into the city:
“The plans are very simple right now. We want to encourage the use of cryptocurrency. I want to get people with a much greater knowledge of blockchain, than myself, in the room to discuss how we can incorporate cryptocurrency into our city.”
In 2020, Tennessee state representative Dennis Powers introduced a bill that calls for an in-depth study of blockchain technology, focusing on its use cases in banking, payments, lending, and other industries.
Jackson is the eighth largest city in Tennessee, but the rest of the state might be tempted to follow its lead due to exploding cryptocurrency adoption. Last week, the Bobby Hotel, one of the most popular hotels in Nashville, added cryptocurrency payments, a first for the state capital.
Conger says that he is taking pointers from Miami Mayor Francis Suarez, who is determined to refashion the South Florida city as the world’s biggest Bitcoin hub.
In February, city commissioners voted to explore Suarez’s proposal to pay municipal employees in Bitcoin and invest a portion of the treasury into the cryptocurrency. Should they proceed with the audacious plan, Miami would easily become the most crypto-forward city in the U.S.
In a March interview, Suarez also mentioned that he wanted to turn Miami into a Bitcoin mining hub, offsetting China’s dominance in the industry. Meanwhile, crypto exchange FTX recently scored a deal to rename Miami Heat’s AmericanAirlines Arena to FTX Arena.
US-based financial giant State Street aims to enter the crypto trading market in the middle of this year.
State Street’s trading platform Currenex, that was reportedly put for sale last year, partnered with London-based Puremarkets Ltd (Pure Digital) in order to develop a wholesale, multi-custodial digital currency trading platform, Puremarkets said today, adding that the partners “intend to further explore the digital currency trading space.”
“Pure Digital will be a fully automated, high throughput [over-the-counter] market for digital assets and cryptocurrencies with physical delivery and bank custody,” the company said.
According to them, institutional participants will trade on the platform utilizing bilateral credit enabling efficient capital utilization and control for all trading participants.
“The Pure Digital trading platform will be the first of its kind, offering a wholesale interbank market for Tier 1 investment banks to trade bitcoin and other digital assets. Pure Digital is in discussions with several other Tier 1 investment banks to use the platform, which will provide a high throughput OTC market for digital assets and cryptocurrencies with physical delivery and bank custody,” Norway’s digital asset-focused company Arcane Cryptosaid in a separate announcement. They indirectly own a 37.5% stake in Puremarkets.
At the end of 2020, State Street had USD 3.47trn in assets under management or 11% more than a year ago. However, their revenue dropped by 4%, to 2.9bn, and net income decreased by 5%, to USD 537m.
“While State Street rose to the challenges in 2020, we are laser-focused on fee revenue growth and expense management to continue to make progress in 2021 towards our medium-term targets. We are confident in the trajectory of our business and will continue to drive innovation, automation and productivity to achieve these goals,” Ron O’Hanley, Chairman and CEO of State Street, said.
Sweden’s plans to create a central bank digital currency might be more complicated than initially thought according to a new study published by the nation’s central bank. It estimated that the Scandinavian country could delay the release of the e-krona until 2026.
How Does a Cashless Future Look Like?
The Riksbank published the results of the first phase of a pilot project exploring an eventual post-cash era and its consequences. The simulation showed that the rapid speed at which cash is disappearing presents ”potential problems.” However, a digital currency under the control of a central bank has the ability to address them.
The project is colossal, and Sweden’s central bank, which is the oldest one in the world, keeps delaying the timeframe for completing it. Initially, the institution announced it will be ready with the task and move ahead with the e-krona by 2018.
The Riksbank now indicated the current pilot project won’t see the light of day before next year. Some more pessimistic projections, though, stretched the timeframe until the end of 2026.
Mithra Sundberg, who leads the Riksbank project in Stockholm, said that it’s vital to avoid settling on the technology before realizing precisely what the digital currency needs to do. The bank indicated it’s not replacing cash and moving forward with the task will most likely require a new legal framework before releasing it.
In the meantime, the largest economy on the Scandinavian peninsula is proud to be one of the smallest users of cash in the world. During the pandemic, cash usage in the country was at its lowest level ever. According to Riksbank’s research, less than one-tenth of all payments in the county are made in cash.
The Controversy From Other Countries
Norway, Sweden’s neighboring country and another mainly cashless nation, also weighed in on the CBDC topic. However, its central bank said there’s ”no acute need” to introduce digital currency yet.
Other countries also spoke about being a first-mover in the field of digital currency. Federal Reserve Chairman Jerome Powell recently opined that there is no need to force the process. He noted that the US would ”rather be right than first”.
Sundberg noted that Sweden’s e-krona project still needs to explore the monetary policy consequence of such a transformation. But her team had ”looked at the technical possibilities of being able to charge interest.”
Meanwhile, the Riksbank has focused on a so-called two-tier model. This system will be responsible for the circulation and redemption of CBDC. Michael Lindgren, the technical project manager at the entity, mentioned that this model will allow direct contact between the so-called participants, such as banks or payment firms, and the end-users.
Even money itself has gone digital. Only about 3% of money globally is now in physical form. Bitcoin is now (measured by market cap, at least), the 13th largest currency in the world. It didn’t exist 15 years ago.
The key to this rapid growth is scalability. A digital product can be endlessly and instantly copied. I can design a fantastic app once, upload it to the app store once, and it can be downloaded a million or a billion times. If Google can get some new groovy feature in its search engine, then once implemented it’s almost infinitely scalable.
But let’s say I design a fantastic washing machine. It takes much longer to get this washing machine to the world – the fabrication and distribution are all tricky, but perhaps most difficult is the burden of regulation in the physical economy, particularly as it attempts to cross the national borders.
By contrast, the economy of the internet is (almost) borderless. The digital space, or certainly the areas where the innovation is, is largely unregulated – how do you regulate something that hasn’t been invented? So digital escapes the ties of regulation that curb the growth of the tangible.
Then, because of the extraordinary speed of growth in digital, there is the potential for investors to make far quicker returns on their investment. And so the digital economy attracts the most capital, the most talent and so on.
With this in mind, let us turn our attention to metals.
The physical world is treacherous and time-consuming
You don’t get much more tangible than metal. Mining is in many ways the most analogue industry there is; it is the very opposite of the dynamic digital world. A geologist is studying rock formations that took thousands of years to take shape, and will take decades to mine.
Sweden’s central Riksbank is forging ahead with its e-krona pilot project, and has outlined the next steps it wants to take – putting it on track to become the first European nation to roll out a central bank digital currency (CBDC).
The Riksbank has been bullish about issuance, but will still have to convince politicians in the country to grant it the legal powers to proceed with its plans. However, in a new “phase one” report from the bank, described by Bloomberg as “essentially the most advanced exploration of a post-cash era to be undertaken by a major, western economy,” the Riksbank spoke of how it was making use of R3’s Corda blockchain platform and distributed ledger technology innovations.
Now the Riksbank says it will spend at least another year exploring technical solutions after extending its existing contract with Accenture.
During that time, it will seek to do the following:
Involve “market actors” – presumably private sector firms and commercial banks – which will be invited to take part to see if their internal systems can be successfully integrated with the prototype CBDC
Develop offline functionality, a feature already being built into the Chinese digital yuan, and a key point for accessibility
Develop more storage solutions, which could involve third-party CBDC wallet providers, such as commercial banks
Develop a more efficient payments infrastructure and integrate with existing point of sale (PoS) terminals
Boost performance and scalability
Evaluate and analyze its CBDC’s performance and network infrastructure progress, a step that will involve the “division of responsibility among participants”
Bloomberg quoted Mithra Sundberg, the head of the Riksbank unit charged with conducting the pilot, as stating that the bank has “looked at the technical possibilities of being able to charge interest,” although possible “monetary policy ramifications” have not yet been examined.
The Riksbank CBDC model is a two-tier approach whereby it would issue, redeem and destroy tokens as it sees fit, with intermediaries (namely commercial banks and payments providers) distributing the CBDC to both businesses and individuals.
The report’s authors appeared to be aware of the potentially thorny user data-related issues likely to lie ahead. Critics of CBDCs in other countries say they are worried too much of their spending anonymity will be compromised by such projects.
The authors wrote,
“The Riksbank is currently analyzing to what extent the information stored in the transaction history can be regarded as information covered by banking secrecy and whether it comprises personal data.”
Global financial chiefs have suggested that they may look to more aggressive tax collecting measures in advanced economies as a means to dig the world economy out of a “disturbing” impending coronavirus pandemic-induced debt hole.
The comments were made at a virtual summit of the International Monetary Fund (IMF), streamed online, during a seminar named “Averting a COVID-19 Debt Trap” today. Attendees addressed possible ways “to contain debt risks through better debt architecture and transparency” and asked how “global cooperation” might help alleviate the problem.
The IMF’s Managing Director, the Bulgarian economist and the former CEO of the World Bank Kristalina Georgieva, claimed that the world had “entered the pandemic with high levels of debt,” with 56% of low-income countries at risk of or already in the grips of “debt distress.”
She added that the risk for developing countries was twofold: With a slower rollout of vaccines than richer economies, lower-income areas would likely “lag in years behind advanced-economy countries without support.” And, she opined, good economic news “for some” could “turn into bad news for others.” A faster United States recovery, she added, “may push up interest rates, increasing the debt burden for developing world.”
Indeed, the IMF’s latest projections saw global GDP forecasted to rise by over 6% this year, dropping down to just under 4.4% in 2022 – after global output dropped by 3.3% in 2020. America, though, is expected to outstrip the global average with 6.4% growth, while the pace of growth will be the lowest in Sub-Saharan Africa, at just 3.1%.
But Georgieva indicated that IMF’s “path forward” involved “more grants and increased support” to “bring down [poorer countries’] debt levels.” And with the 30-or-so poorest nations temporarily not currently paying back IMF loans due to the economic fallout of the pandemic, she called on advanced countries to ensure “all hands” were “on deck.” And this, she claimed, involved governments to “collect taxes more effectively.”
Her comments came hot on the heels of calls for international tax reform from Janet Yellen, the American Treasury Secretary. Yellen has recently spoken of her desire to see a “global corporate tax” system put into place.
AP quoted the Treasury chief as stating she wanted to “make sure that governments have stable tax systems that raise sufficient revenue to invest in essential public goods.”
Many governments have already sought to bolster the public coffers by clamping down on crypto tax evasion – and imposing capital gains and income tax levies on crypto-related profits.
Experts recently told Cryptonews.com that bitcoin (BTC) could become a “safe haven” if the debt crisis escalates – with even a possible selloff likely followed by people returning to BTC at a later date.
Georgieva added that transparency would be key in its approach to global debt. She said that the IMF “must press very hard to make it so that mountains of debt that are often hidden” were made public, and “expose” debt contracts and some of their often “ridiculous conditions.”
She also talked about building a common framework for creditors and “making it stick” for traditional lenders as well as a new breed, including possible private-sector creditors, and parties from countries like “China and Turkey.”
“We cannot afford complacency. If countries are not committed to moving with us, nations will start falling into the debt trap.”
Martin Wolf, the chief economics commentator at the Financial Times, drew attention to polls run by the IMF on LinkedIn where 48% of respondents said they were “extremely worried” by the escalating debt crisis and 23% said that “low, stable inflation” would be key to alleviating the situation.
He noted that the attendees had painted “a disturbing picture” of the likely outcome.
Mohamed El-Erian, the President of Queens’ College, Cambridge, and Allianz’s Chief Economic Advisor, claimed that higher growth and the “timely restructuring of debt” could help avoid the kind of debt crisis the world faced in the early 1980s and again in 2008, but opined that a “lost decade” could be looming. “More market volatility” could follow if the correct measures were not followed, El-Erian added.
He warned that part of the debt restructuring solution “will involve using the stick” in the system, “not the carrot.” He added that there was “too much complacency right now” and warned that many markets were “flooded with liquidity” that had “made debt problems worse.”
The crisis, he added, could be worse than that of the 1980s, particularly in Africa and parts of Asia.
But the Under-Secretary-General of the United Nations, Vera Songwe, who is also the Executive Secretary of the Economic Commission for Africa, noted that debt-to-GDP levels are currently at 65% in Africa, and opined that a “lack of private sector participation” could compound the problem.
She said, “Vulnerable middle-income countries, such as Morocco […] are suffering from a lack of tourism.” And this, Songwe said, could propel lower-income countries into negative spirals.
And while others were more guarded about the role of the private sector and Chinese players in alleviating developing-nation debt, Songwe stated that liquidity was badly needed. “Emerging economies have not seen enough liquidity,” she said, adding:
“[These countries] need new liquidity yesterday. […] The private sector needs to come to the markets – and do so at the right cost. We can reduce the cost of market access. […If not,] 170 million people may fall into poverty. Can we really afford to let so many people fall into poverty?”