SEC Boss Still Concerned Over Crypto Custody and Manipulation

September 10, 2019

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As the bitcoin and crypto industry gears up for Bakkt, the US Securities and Exchange Commission (SEC) claims there is still work to be done. The primary concerns at the moment revolve around custody and price manipulation.

Bakkt Could Solve SEC Crypto Concerns

Speaking to CNBC’s The Exchange yesterday, SEC chairman Jay Clayton was asked if those in the industry have come closer to satisfying his concerns and those of the regulatory body. He replied positively stating that there is still work to be done for futures markets.

The first concern is regarding the custody of crypto assets. The regulator needs to be satisfied that any trading products offered to institutional investors also have the means to safely store the assets for their clients.

Clayton’s second concern was that crypto assets trade on largely unregulated exchanges. There needs to be some assurance that the prices quoted are not subject to manipulation. He added that progress was being made but those two questions need clearly defined answers before SEC can begin approving more crypto-related products.

Are we any closer to seeing a Bitcoin ETF some day? SEC Chairman Jay Clayton to @CNBC: “yes, but there’s work left to be done” @SEC_News @bobpisani @kellycnbc @CNBCTheExchange #bitcoin #crypto pic.twitter.com/iJP3nn9XHc

— The Exchange (@CNBCTheExchange) September 9, 2019

Bakkt has already answered the first question with the launch of its ‘Bakkt Warehouse’ which was announced yesterday. According to the release the New York State Department of Financial Services (NYDFS) regulated product provides customers with a Qualified Custodian of bitcoin.

The Intercontinental Exchange subsidiary added that it will create the first fully regulated physically delivered Bitcoin Futures contracts on September 23^rd. So this at least satisfies the first major concern by US regulators as the custodian is also backed by a $125 million insurance policy.

Unregulated Exchanges

The crypto price manipulation problem is a trickier one to overcome. As with any asset, supply and demand dictates price movements and bitcoin is no different. In recent weeks there have been large premiums on prices in countries such as China where demand has increased due to escalating economic tensions and a weakening of the local currency.

To avoid this, any institutional product would need to derive its prices from a regulated exchange within the country it is being offered. In the case of any new ETF, this would probably be Coinbase or Gemini.

The scene in 2019 is vastly different from that in 2017 when US regulators were stomping all over the industry with their heavy boots. Today they are open to new asset classes and more products are likely to be launched in the coming months. If commodities markets are anything to go by since derivatives products were launched, digital assets could experience the same growth.

Will the SEC warm up to more crypto-related products this year? Add your thoughts below.

Images via Bitcoinist Image Library, Twitter: @CNBCTheExchange

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