The US Government Shutdown impact on the Crypto IndustryJanuary 15, 2019
As the US government shutdown enters its fourth week, breaking all of the records, the question when will it ends remains, unlike many government agencies, open. With the US president and his Democratic position staying on the opposite sides of any kind of an agreement, making a deal seems very unlikely.
Instead, special presidential powers will likely be the pull on this thread of knots that will get the government and its ever more desperate employees back to work. In any case, the price of any kind of a decision, except for the complete abandonment of the wall on the US-Mexico border, will be high and almost certainly paid continuously through court battles and similar political tug-of-war processes.
Yet, one more domain is also paying the price and it might not be the first thing that comes to mind. This field is the crypto development scene and a range of ventures in it that are currently trying to make their businesses work in the US. Here is how the government shutdown is taking its toll on them and what the outcome could possibly bring to their plans for the future.
SEC and CFTC
The twenty-plus-day shutdown has also closed two specialized trading agencies. These are the SEC (Securities and Exchange Commission) as well as the CFTC (Commodity Futures Trading Commission). While some parts of these agencies are still up and running, the keys have been put into the locks of any crypto-relevant departments. These are mainly the agency departments dedicated to the development, approval, and launch of services and products connected or involving cryptocurrencies. These include the bitcoin futures market by Bakkt that was delayed.
A part of the same delay was the company’s failure to secure the approval before December 22 when the government shutdown started. This Intercontinental Exchange platform is in a holding pattern that will last until the said agencies open their public comment process period that should last for 30 days. This means that the launch of the same platform, previously set for January 24 was also delayed and yet to be announced. However, Bakkt has not been deterred by this development and continues to build their platform.
On last Monday, the company stated that it was acquiring segments of an independent futures commission merchant RCG (Rosenthal Collins Group). The purpose of this move is to bolster their compliance with the regulators. Kelly Loeffler, the Company’s CEO, stated that the organization made progress in December 2018 and that they aim to continue unit they get their customers and a green light to provide their services.
The State of Limbo
In Spite of the enthusiasm of the Bakkt the fact remains that many companies are in a state of limbo when it comes to the shutdown and the approval that might or might not be coming their way. This position is bad news for any industry that is dynamic and quick-moving as crypto, which includes esports, tech startups, and other digital ventures. The crunch is being felt by a range of companies, especially those looking for their regulatory approval that would have been otherwise imminent.
ErisX, a crypto trading platform that managed to raise $27 million from a range of famous investors, is also in a state of waiting as it looks for the federal employees to get back to work. ErisX is aiming to be a futures market that is fully regulated and this demands a CFTC approval.
So far, according to the company’s CEO Thomas Chippas, the relationship between them and the CFTC has been productive and positive. However, during the shutdown, the relationship has been put on hold and the company was only able to continue their development and look forward to the future re-engagement with the CFTC.
The Risk for the Products
Aside from the startups, entire products are currently under potential risk because of the government closure. ETF or the bitcoin-related exchange-traded fund is in hot waters. Right now, the SEC has one rule change proposal that sits before this agency. The same proposal has already been delayed many times and its final deadline on February 27 is approaching fast. In the case that the SEC does nothing about it, the existing law will see the proposal approved.
The US law is clear on this and the lack of response by the SEC will immediately put the product under the approval clause. However, legal experts are certain that the same approval-by-default will not happen like this even if the government shutdown goes go on for some time. Instead, the same experts believe that the staffers that remain on active duty will simply reject this or any similar application.
The logic is clear – denying these means that they risk being unjust to the startups and their products, but approving by default means that they are willing to take on the risks in the name of the public. Many other legal insiders believe the same to be the most likely scenario as the other alternative will put the SEC in a very difficult position. While working properly, the commission already rejected almost a dozen products in 2018 alone.
Legal Advice Needed
The irony of the whole matter is the fact that the US crypto space was, even before the shutdown, waiting for some clarity when it comes to how to approach regulatory requirements. Now, because of the shutdown, any SEC initiatives have most likely been postponed or completely shelves. The agency, like many others, will have its hands full when they return to work and the crypto necessity will not be that high on the agenda. Many suspects that the crypto industry will have to wait for one or two quarters before things get back to normal.
The collateral of this process will be the already mentioned companies and products, but also firms like Canaan, mining manufacturer that was considering an IPO in the US. It began the process of regulation and approval, but the showdown has likely postponed the IPO in an indefinite manner. Because of things like this, it is clear that the shutdown has moved the regulatory aspect of the crypto industry in the US at least six months back, potentially even longer.