Three policies show that regulators are trying to assimilate cryptography
Benjamin deandirector of digital assets at WisdomTree, said three “major policy developments” in three months this year marked a paradigm shift in the adoption of cryptographic assets.
Talking to ETF Stream, dean (pictured) highlighted the recent U.S. Executive Order on Ensuring the Responsible Development of Digital Assets as an attempt to measure the costs and benefits of digital assets in a “well-written, structured, pragmatic policy approach.”
“When I lived in Washington I used to do technology policy work and go to the Hill and report to congressmen about cybersecurity,” he continued. “I would also tell them that bitcoin is one thing and it’s going to be quite important. The answer I would get is ‘what is bitcoin?’ What is crypto? ‘”
“In five years, we have gone from a position of little or no awareness to one in which the White House executive has issued this executive order telling a number of executive agencies to prepare a series of reports on policy responses to digital assets.”
Looking at the Treasury announcement that it wants to make the UK the global “cryptographic center”, dean he said the new political stance is “scarce in detail”, but described the move as “very positive” and in “marked contrast” to previous, less accommodating messages.
“They mention the regulatory sandbox, the crypto sprint with industry stakeholders, and ideas on tax reform, especially on flash loans,” he continued. “That political position is good and they will develop more initiatives over time, but coming from the Treasury is very different from coming from the executive.”
Finally, he pointed to the EU’s regulation of Crypto-Assets Markets (MiCA) which is being “continuously reformulated” in the European Parliament.
Parliament’s multi-stakeholder approach means collaborating with lawyers, academics and relevant people from the financial services and technology sector.
After that, it moves on to a tripartite dialogue with the European Commission and the Council of Europe before entering into a directive that member states should enact with their own delegated bodies.
“If we look at all three, accepting that they are all different and at different stages of development, the common thread is that everyone has admitted that this is not going to go away.” dean said.
“They have recognized that there are benefits and risks and everyone will assimilate in their own way this new technology in the existing regulatory and legislative frameworks.
“It’s exactly the same way the Internet has been integrated into regulatory and legislative frameworks.”
Dean, who spoke on ETF flows Crypto 2025 event in March, argued that the success of the new regulation will depend on facilitating the beneficial uses of cryptography without acting based on fears of risks that existed in the past.
On the prohibition of the Financial Conduct Authority on retail access to Cryptographic Exchange Products (ETPs), said: “The FCA’s position was to protect retail investors from unscrupulous players in the derivatives market. Its ban was around the distribution, marketing and sale of those derivatives to retail investors, and addressed a risk that the FCA perceived in the past for retail investors.
“In the future, it would be prudent to re-evaluate whether that risk still exists and then put in place measures that minimize the ability of these bad actors to operate.”
Considering the decision of the Securities and Exchange Commission to deny WisdomTree (and many others) applications for a spot bitcoin ETF in the US, dean argued that futures ETFs currently available to investors are “suboptimal” due to their inherent yield drag.
“Our view is that over time the SEC will adjust its position as concerns are eased. It may not be under this administration, it may be the next one, regulators take time,” he added.
Finally, on the increasingly popular topic of cryptocurrency betting and performance generation within ETPs, dean he said the amount of performance given to the different stakeholders that “the market would find where the balance is” as issuers demonstrate their efficiency and new competitors arrive.
Unlike securities lending, participation does not involve the physical lending of assets, but rather remain in the custody of the issuer. Although there are operational and cybersecurity risks, this means that counterparty risk is less of a concern.
“Once they get to the middle of the adoption curve, where they attract 30-40% of the population, they’re not as technically savvy as the first adopters, so they’re going to need something to help them address and manage the risks.” dean he concluded. “Being under the regulatory umbrella shows that technology works.”
To view Crypto 2025 on-demand sessions, click here.