An unprecedented government shutdown, now regarded as the longest in the history of the U.S., has adversely impacted the crypto industry.
Concomitant with Washington DC’s four-week-long impasse, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) has also suspended operations in the interim consequently curbing major advancements in the field of cryptocurrency such as the approval and launch of crypto products and services, among which includes the much-anticipated launch of Bakkt’s Bitcoin futures market.
According to the company, the delay stemmed from its failure to secure the required regulatory approval prior to December 22 at the time the shutdown began. Built by the New York Stock Exchange’s parent company the Intercontinental Exchange, the platform, as it stands, remains on hold until both regulators begin the 30-day “public comment” period which will determine the platform’s new launch date.
Despite delays in the platform’s launch, Bakkt continues its expansion initiatives, including a potential asset acquisition from independent futures commission merchant Rosenthal Collins Group (RCG), in an effort to boost it regulatory compliance capabilities, as indicated in a January 14 announcement.
According to a Medium blog post published on New Year’s Eve by Bakkt CEO Kelly Loeffler:
“We made great progress in December, and we’ll continue to onboard customers as we await the ‘green light.”
Another startup awaiting the end of the prevailing government standoff is trading platform ErisX, which recently raised $27.5 million during a funding round led by top investors, in a bid to become a CFTC-regulated futures market and clearinghouse.
As ErisX CEO Thomas Chippas was quoted as stating “ErisX’s interaction with the CFTC has been both positive and productive,” adding that:
“During this government shutdown we have continued our platform development efforts. We look forward to this current impasse being resolved and re-engaging with [CFTC] staff on our DCO [derivatives clearing organization] application.”
Aside from exchanges, the government shutdown also poses potential risks to other crypto-related products, among which include the highly anticipated crypto exchange traded fund (ETF). However, a rule change proposal filed by VanEck, SolidX, and Cboe is still pending the SEC’s approval, which would automatically be approved based on existing laws, should the SEC fail to make a final decision on February 27.
Deferred for several times, the proposal faces a final deadline set on February 27. The proposal would be approved under existing law if the SEC does act.
As cited under, Title 15 of the U.S. Code, the proposed rule changes “shall be deemed to have been approved by the [SEC] if … the [SEC] does not issue an order approving or disapproving the proposed rule change.”
On the other hand, several legal experts posited that an approval-by-default is highly improbable even if the shutdown continues.
Should the impasse persist, Lowenstein Sandler’s broker-dealer practice chair Ethan Silver expects that any staffer who remains on duty during the furlough would immediately reject the application. He went on explaining that the regulator’s decision to reject the proposal will most likely be attributed to “market integrity” or another similar emergency contingency.
As indicated by Kobre & Kim lawyer Jake Chervinsky in a post on Twitter, it is highly possible that the SEC would find some other reasons to deny the proposal during the extended standoff, an opinion with which Silver Miller law firm’s David Silver shared.
Despite the increasing number of ETF proposals reviewed by the SEC, the regulator has yet to approve any of them. However, the regulator’s rejection has not deterred other companies from attempting to be the first to secure such approval. In fact, Bitwise Asset Management has recently disclosed plans of launching a Bitcoin ETF with NYSE Arca.
Although NYSE Arca has already filed a registration form, the SEC has yet to consider the ETF request, unless the company submits the rule change proposal.
As crypto exchanges await the SEC decision, the crypto industry in the U.S. also expects further clarity and official guidance on how digital assets can be safely handled.
However, regulated trading platform Templum co-founder Vince Molinari suggested that any initiatives that the securities regulator may have planned including the issuance of potential guidance on custody will most likely be further held up.
Molinari was quoted as saying:
“I think the entire space gets pushed back. It could be a quarter or two before things go back, it could be longer depending on how long the shutdown’s in effect.”
Further compounding the issue is the fact that even if the protracted shutdown ends, federal employees still need to make up for lost times during the standoff, he noted, indicating that:
“There’s talk about the [initial public offering] calendar being pushed back.”
Among the crypto companies purportedly mulling over launching a U.S. IPO is mining manufacturer Canaan, which is reportedly still in the early stages of making a final decision. As Molinari surmised, the prolonged impasse could potentially defer IPO approvals “indefinitely.”
These issues are akin to those faced by the U.S. FinTech industry, as cited in an analysis report published by Roll Call, a new site dedicated to the U.S. federal government.
As Roll Call previously noted, CFTC has so far failed to review any of the previously submitted comments, despite requesting for further information on Ether and Ethereum Network.
According to the Blockchain Association external affairs director Kristin Smith:
“We’ve been making real progress engaging with lawmakers and regulators on the merits of the token economy in the last several months, but the shutdown puts the handbrake on some of those conversations.”
Smith went on adding that:
“There are pressing concerns on a number of fronts – taxes, SEC guidance, Treasury guidance – and the shutdown, at the very least, pushes those issues to the back burner for the foreseeable future.”
While the SEC has yet to issue an official statement, the regulator sent an auto-response via e-mail, explaining that:
“Due to a lapse in appropriations for the federal government, the U.S. Securities and Exchange Commission is currently closed. I am currently out of the office, and will return to the office once an appropriation has been enacted. During the closure, I will not be monitoring or responding to my emails. Thank you.”