Last Friday, the SEC ruled against approving the Winklevoss Bitcoin Trust exchange-traded fund (ETF), the outcome of an almost four-year process. While the decision was a disappointment to many, it is only one skirmish in what is likely to be years of back-and-forth before digital assets take their rightful place as widely-accepted tokens for global commerce.
While regulatory debates continue, the price of bitcoin is up almost 200 percent from March 2016, overtaking gold for the first time in history this month. This demand continues to drive the development of varied and institutional-quality investment vehicles for digital assets.
As this institutional interest in blockchain grows, so too does the universe of prospective investors, further emphasizing the need for balanced regulation that protects the public, while allowing this transformative new technology to flourish.
A Deeper Issue
The SEC’s decision is indicative of a much deeper and more systemic issue within the U.S. regulatory landscape. Our regulatory system is fragmented, complex and uncoordinated. It is laden with agencies quick to point the finger and slow to assume responsibility for enabling innovation.
In its rejection, the SEC noted that the majority of bitcoin is traded on exchanges outside of the U.S. — hardly surprising when considering the current status quo.
In the U.S., digital currency exchanges have largely been categorized as “money service businesses”, subjecting them to state regulation. These exchanges have to obtain licenses on a state-by-state basis in order to operate — an enormously burdensome, if not prohibitive process.
Without a clear regulatory framework, nor the ability to secure the licensing and approval needed to go to market, blockchain companies are increasingly being forced overseas. Our global counterparts continue to show decidedly more progressive attitudes toward the development of blockchain technology.
With moves like this SEC decision, we risk more jobs, innovations and businesses seeking friendlier regulatory environments in Europe and Asia, where the appetite for fintech innovation is markedly greater.
To regain and retain leadership in this important sector of the economy, U.S. regulators should focus on pro-growth initiatives, such as establishing a federal option for digital currency exchanges, to seize the generational opportunity to develop this country as a true center of excellence in financial technology.
Steady Progress
Progress has never been linear for digital assets, but it’s been mostly consistent. Innovation on a potential multi-trillion-dollar scale naturally generates something of a rollercoaster — think back to when the Netscape browser gave way to Internet Explorer and Safari, Google supplanted Yahoo!, or Facebook replaced MySpace.
We should accept that this is the natural process when high tech brings value to people, and regulators should be judicious in facilitating the adoption of best practices. The SEC’s decision not to approve an application for a Bitcoin ETF captivated the attention of financial leaders, blockchain startups, retail investors and the financial media.
Now is a crucial time for the blockchain community to build on this momentum and to capitalize on the growing public awareness of this emerging sector. Government agencies across the U.S. are actively exploring blockchain technology, including the U.S. Department of Homeland Security, the Food and Drug Administration and the Department of Health and Human Services.
Despite this latest setback, there are still many avenues for the blockchain community to establish a permanent place for digital assets in our financial system and to encourage the incorporation of distributed ledger solutions at a widespread level.
Perianne Boring is the founder and president of the Chamber of Digital Commerce, the world’s largest trade association representing the blockchain industry.
The views expressed by contributors are their own and not the views of The Hill.
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