Around the block

Highlights:

1.     Regulations and enforcement actions accelerating

• We are encouraged by the regulatory progress in the areas for crypto custody, exchanges, stablecoins and customer protection.
• The SEC recently proposed a significant revision to their custody rule which would include crypto in the definition of an asset and require crypto exchanges to comply with existing custody laws. This could reduce the risks of another FTX debacle.
• Additionally, bank regulators issued a joint statement to address liquidity concerns of crypto-based, banking-related businesses such as Silverlake which recently announced it’s liquidation.
• A revised Lummis-Gillibrand Responsible Financial Innovation Act could be a catalyst for regulatory momentum as early as April. However, it will take time to make the rounds through Senate and House committees

2.  Custody regulation + Grayscale win = game changer

• The custody rule at the center of Greyscale’s bid to convert into an ETF is out for public comment and a decision in the Grayscale vs SEC court case is not likely until this fall.
• While it is too early to handicap both a new crypto custody rule and an SEC loss against Grayscale in its bid to convert to an ETF, any resolution on either of these issues could be a game changer since it could open wider institutional access to crypto assets.

Chart of the month – Not your keys, not your crypto

Private keys are a 64-alphanumeric character cryptographic PIN that can be used to store and access crypto assets on hardware or digital wallets, therefore, not requiring a third-party custodian.

• However, some crypto investors prefer third-party custody solutions offered by centralized crypto exchanges for simplicity.
• FTX was an unregulated “custodian” that held client private keys    and restricted client withdrawals leaving little client recourse.
• The FTX fallout led many to move their crypto holdings into self-custodied “wallets”, a trend that has receded to pre-FTX levels.