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White House issues directive on digital assets for regulatory clarity

It’s uncertain whether institutional investors, who have mainly avoided the asset class until now, will step in once and if new laws are enacted, but the crypto business is upbeat following President Joe Biden’s executive order on March 9 defining a federal digital assets policy.

Consumer and investor protection; financial stability; illicit financing; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation are among the six themes covered by the order.

The Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Treasury Department are all on the front lines of crypto regulation. The SEC said on May 3 that the newly renamed crypto assets and cyber section, which strives to protect investors in the crypto markets, will be expanding by 20 jobs. The unit will now have 50 full-time employees.

The White House order addresses a number of issues, including directing the Treasury Department and other regulators to assess and develop policy recommendations on how the digital asset sector may affect financial markets for consumers, investors, businesses, and equitable economic growth. It also encourages authorities to maintain adequate control and protect against any systemic financial risks that digital assets may pose.

According to Timothy Spangler, a Los Angeles-based associate with Dechert LLP, “it’s an approach that crypto stakeholders can get behind.” Mr. Spangler explained, “It’s an acknowledgement that crypto is here to stay.” “The industry was thrilled” by the presidential order, which “seemed to be a relatively middle-of-the-road, pro-crypto response from the Biden administration.”

Additional crypto legislation, according to Mr. Spangler, is unlikely to change things for institutional investors because present law and regulation is sufficient; it’s more about education. Mr. Spangler explained, “This is an area where there is a significant learning curve that every investor needs to spend time going up.”

Craig Salm, New York-based chief legal officer at Grayscale Investments LLC, believes that the SEC’s approval of a spot bitcoin exchange-traded fund will help institutional and other sorts of investors grow more comfortable with crypto. Mr. Salm wrote in an email that “as an investment vehicle, ETFs are very well understood, have a good regulatory background, and enjoy significant support in global markets.” “The approval of a spot bitcoin ETF would allow investors to gain exposure to bitcoin in an SEC-regulated investment vehicle that will not only more efficiently track the price of bitcoin, but will also bring the United States up to speed with global bitcoin ETF offerings,” according to the press release.

The SEC has a deadline of July 6 to convert Grayscale’s flagship Grayscale Bitcoin Trust to an ETF. The SEC has until July 6 to make a decision. Only bitcoin futures ETFs have been approved by the SEC so far, with spot bitcoin ETFs being denied, however Grayscale’s and several other applications are still pending.

The Purpose Bitcoin ETF, which has a market capitalization of C$1.5 billion, was approved by Canadian regulators in early 2021. In December, Fidelity Investments introduced the Fidelity Advantage Bitcoin ETF in Canada.