One of the lawyers who helped craft the application for what would be the first-ever bitcoin exchange-traded fund (ETF) is doubtful the SEC will approve such a request any time in the near future.
The critique, courtesy of former Gemini general counsel David Brill, potentially cuts deep, as his old employer's last and final deadline to receive approval for the experimental product is on 11th March.
Though Brill is quick to point out he is a “proponent” of the creation of bitcoin ETFs and pro-bitcoin regulation more broadly, the prognosis does not bode well for its success.
In conversation with CoinDesk, Brill explained that he believes factors such as China's impact on the price of bitcoin make an approval unlikely.
Brill said:
"It seems unlikely, among all the other reasons, that the commission is going to want to move forward with a product where the major trading is done an exchanges that may not be following our AML guidelines."
A career lawyer for 20 years, Brill worked at Thompson Financial from 2003 through 2010, when it acquired Reuters.
Prior to departing Gemini last year, Brill worked as the New York-based exchange's general council, where he said he helped create the legal infrastructure of the exchange and craft a number of responses to amendments to its S1 filing.
Though Brill does believe that that a bitcoin ETF will eventually be allowed to do business on a major stock exchange, he said the SEC will be unlikely to do so while as much as 95% of all bitcoin transactions are carried out in China, according to CoinDesk’s Q3 State of Blockchain report.
That, coupled with the China government’s recent crackdown on cryptocurrency exchanges and anti-money laundering practices, makes for an even less likely approval, he said.
"It's more that the overwhelming majority of trading is not being done in the US, and being done in an area where the rules and regulations are not consistent with the rules here," said Brill.
Bitcoin banks?
Later today, Brill plans address the members of the American Bar Association (ABA) at its Derivatives and Futures Law Committee Meeting in Florida.
At the committee meeting, he intends to detail his concerns regarding the future of bitcoin ETFs, as well as the potential impact of the Office of the Comptroller of the Currency's proposed plans for a federal FinTech charter that might eventually give some bitcoin companies bank status.
Similar to his concerns about the approval of a bitcoin ETF, Brill said that while he'd like to see the charter applied to bitcoin exchanges that meet the requirements, he's skeptical this will come to pass.
"I would say that eventually it could be open for bitcoin companies," he said. "But right now, there are real issues regarding the scope of the charter and some real disagreements between the states, a number of Democratic Senators, and the OCC."
Specifically, Brill pointed to opposition from individual US states, some of which allege the OCC has overstepped its power, even if the end goal is to make the US more competitive with other nations.
Earlier this week, the superintendent of the New York State Department of Financial Services, Maria Vullo, submitted a comment letter to the OCC in opposition to the proposed national bank charter for financial technology companies.
Vullo wrote:
"The OCC should not use technological advances as an excuse to attempt to usurp state laws that already regulate FinTech activities where they intersect with banking and lending, whether depository or non-depository."
Furthermore, just a day earlier, senators Sherrod Brown (D-Ohio) and Jeff Merkley (D-Ore), wrote a similar letter in opposition to the charter, citing concerns that it would allow the proliferation of "predatory alternative financial services providers," according to American Banker.
Change is coming
Speaking shortly before Donald Trump’s inauguration as President, Brill said he is cautiously optimistic about a more promising environment for bitcoin companies in the future.
From a strictly local business perspective, he predicted Trump would likely take a pro-bitcoin stance.
However, considering concerns about a possible "trade war" with China following Trump’s expected policies, Brill said the predominance of bitcoin trading in the nation could be a hindrance.
In his ABA address today, Brill said he intends to speak to a larger trend of creating a more fertile regulatory environment for bitcoin startups.
He concluded:
"I want to try to see what approaches might work to make it easier for bitcoin companies to expand across the US. Because right now, it is extremely difficult because every state has something different that they want."
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