R E G U LAT ION
“A MIXED BAG? ”
NAVIGATING CRYPTO’ S NASCENT REGULATORY FRAMEWORK
Regulation remains in sharp focus. Digital participants from across the financial markets spectrum are keen to dive in headfirst while others, partly due to a perceived supervisory gap, remain on the sidelines
W
ith the global regulatory landscape very much in a state of flux, the US Securities and Exchange Commission has set to work on establishing a supervisory framework covering the proliferation of digital coins and assets. These potentially include treating certain cryptocurrencies and tokens as investment securities, together with further oversight of NFTs, while SEC chairman Gary Gensler indicated in September that crypto exchanges may have to register as securities markets. The SEC also greenlighted the first US bitcoin futures ETFs - ProShares, Valkyrie and VanEck - on the New York Stock Exchange in October, while the Commodity Futures Trading Commission continues to weigh up the regulation of crypto derivatives in the same way it supervises traditional futures.
their money.” The watchdog pointed to significant price volatility and product complexity in the asset class, and suggested it can be difficult to price reliably. While developed markets have inevitably taken the lead, industry participants point to the “hodgepodge mishmash” of fractured rules and requirements globally. While El Salvador, for instance, enacted legislation last summer permitting bitcoin to be used as legal tender for the payment of goods and taxes, China has maintained its tough stance against cryptocurrencies, outlawing trading services, token issuances and digital currency derivatives, and prohibiting overseas exchanges from offering services in mainland China. Concerns over the shape of regulation loom large among hedge funds.
Across the Atlantic, meanwhile, the EU’s forthcoming Markets in Crypto-Assets (MiCA) initiative sets out proposed rules covering issuance and service provision of crypto assets, with a view to strengthening market integrity and improving investor protection. The plans also look to tackle the potential financial stability and monetary policy risks posed to economies by digital assets. In December, the European Securities and Markets Authority (ESMA) added crypto asset investing to its Alternative Investment Fund Managers Directive (AIFMD) Q&A.
Co-ordination
Early last year, the UK’s Financial Conduct Authority weighed in, warning that consumers investing in crypto assets “should be prepared to lose all
What do you see as the greatest obstacle to launching a digital assets hedge fund strategy currently?
Regulation
Custody risk
Investor appetite
Launch cost or complexity
0 2 4 6 Source: Hedgeweek readers survey, January 2022
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