With no federal regulatory framework, guidance will fall to the SEC and CFTC. It’s more important than ever to educate their clients on crypto.
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The Senate voted this week to block consideration of the Clarity Act, a bill crafted to provide regulatory guidance on cryptocurrencies, strengthen consumer protections and make institutions more comfortable participating in the asset class. In the absence of federal regulation, the SEC and CFTC will continue to advance their own regulations. It’s a blow to the crypto industry, but one that was largely expected, and for investors, not much has changed. But for advisors, it’s a reminder of the importance of educating clients on crypto, said Don Friedman, CEO of the Digital Assets Council of Financial Professionals.
“Since the federal government was unable to provide clear rules to the roads, it’s even more important that end investors use an advisor to get educated on this asset class,” Friedman said. “Would the passage of Clarity give people more comfort and increase the probability of the major cryptocurrencies rising in value? Yes, but presently, it’s reflective in the market that it’s business as usual.”
With no federal legislation, the regulation of crypto will fall to the agencies. “What you’ll probably see is new rulemaking from both the SEC and CFTC that will make the rules for advisors and what they can participate in,” said Joe Sticco, cofounder of Cryptex Finance, adding that FINRA will also likely step up. “I don’t really think that it’ll be much of a difference versus Clarity.”
But because agency regulation is not the same as laws passed by Congress, the SEC and CFTC could become less crypto-friendly if a Democrat ends up in the White House in two years, Friedman said. “They’re likely going to replace [SEC Chairman Paul] Atkins and put in a Democrat-leaning SEC chair, and they can unwind everything that Atkins does.”
Regardless, the crypto market’s reaction was somewhat muted:
The price of bitcoin fell from around $78,000 on Monday to about $76,000 at the close of markets on Wednesday.
Spot bitcoin ETFs did have outflows after the news, shedding $450 million on Tuesday, the largest daily outflow since June, according to SoSoValue data.
Dipping a Toe After the Dip. The price decline could give long-term investors an opportunity to do some dollar-cost averaging in the crypto market, Friedman suggested. “It was prudent for investors who were looking to either buy or sell to wait until there was clarity on whether or not this thing passed,” he said. “Now that it didn’t pass, and it seems to be that the market is relatively calm, I think it could be an opportunity to put one foot in the water.”
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