What You Need to Know
- Regulators are key to expanding the market for cryptocurrencies.
- Eyes are on the SEC for possible approval of a Bitcoin ETF.
- Questions remain about volatility and speculation, illicit uses, energy consumption and demand.
Regulation and greater public confidence are keys to the broad adoption of Bitcoin and other cryptocurrencies, according to a new report from S&P Global Ratings.
The report notes the “wave of excitement about cryptocurrencies in general and Bitcoin in particular, which have become more acceptable as investments or as a means of payment,” but also the limits imposed on their broad-based use due to the lack of new regulations and the excessive price volatility.
Until there is more regulation and greater public confidence, S&P Global Ratings analysts expect cryptocurrencies will “continue to be speculative instruments, which investors mostly use as a store of value rather than a means for commerce.”
To date, the U.S. Office of the Comptroller of the Currency has ruled that national banks and federal savings associations of all sizes may provide custody service for crypto assets, participate in public decentralized networks and accept stable coins to settle payments.
The SEC is letting special purpose broker-dealers custody digital assets, under certain conditions, while it solicits comments on “evolving standards and best practices” for the custody of digital asset securities.
And the Commodity Futures Trading Commission has approved the trading of Bitcoin futures contracts while also declaring that cryptocurrencies are commodities.
In addition, central banks around the globe, including the Federal Reserve, are considering issuing central bank digital currencies (CBDCs) as means of payment, not as investments.
Once CBDCs are established, S&P Global expects to see their large-scale adoption, rather than that of private digital currencies, as a means of payment. In the meantime, Visa, Mastercard, PayPal and Tesla have plans to accept Bitcoin as payment on their platforms. Tesla has also invested $1.5 billion in Bitcoin while MassMutual, a more traditional financial firm, has invested $100 million.
Will the SEC Approve a Crypto ETF? Canada Has
Proponents of cryptocurrencies in the U.S. are now focused on whether the Securities and Exchange Commission will approve a cryptocurrency ETF. It has rejected past applications, but two are pending before the agency: the VanEck Bitcoin Trust and the NYDIG Bitcoin ETF.
Several SEC observers expect that the SEC under Gary Gensler, President Joe Biden’s pick for chairman who has yet to be confirmed, will be more amenable to approving a cryptocurrency ETF than was his predecessor, Jay Clayton.
Gensler is a former chairman of the CFTC and currently a professor at MIT, where he teaches and researches blockchain technology, digital currencies, financial technology and public policy and is a senior advisor to the MIT Media Lab Digital Currency Initiative.
Canada has already approved two Bitcoin ETFs, which trade on the Toronto Stock Exchange and are priced in Canadian dollars, and a third will reportedly start trading soon. “Traditional asset managers are becoming more open to the idea of investing in cryptocurrencies or in taking positions,” according to the S&P Global analysts.