Regulatory Series on Cryptocurrencies: A Glimpse at US SEC on Bitcoin ETFs and FATF on Fungibility of Digital Assets

Of-late, the cryptocurrency exchange-traded funds (ETFs) are branded as the trump card by many aspirants of the crypto-avenue who carry a great deal of optimism that exchange-traded funds likely to stimulate cryptocurrencies with more authenticity in retail and institutional investors’ perspectives, while providing them with timely accessibility to those who already have a brokerage account.

However, the entire cryptocurrency industry has seen in a struggle ever since the U.S. SEC (Securities and Exchange Commission) declined the Winklevoss twins’ attempts of launching a bitcoin ETFs.

There are several exemptions the U.S. Securities and Exchange Commission (SEC) offers that allow companies to launch their bitcoin investment products without registration. While waiting for the SEC to approve their bitcoin ETF, some firms have taken advantage of these exemptions to offer an interim product.

Despite efforts by many companies, the SEC still has not approved a bitcoin exchange-traded fund (ETF). The commission has been taking its time to evaluate any proposed rule changes for such a product that have come its way, repeatedly extending the time it takes to make a decision on each.

ETFs are nothing but securities that monitors a class of securities or assets proportionately represented in the fund’s shares. Aspirant traders/investors perceive them as a budding movement among cryptocurrency gamut.

FATF on fungibility of digital assets:

New guidance from the Financial Action Task Force has resurfaced old concerns about the fungibility of digital assets that are backed by open, decentralized blockchain networks.

One of the few things that economists agree on is the seven characteristics that a currency should possess. For a good or currency to function as a medium of exchange and be considered “sound money”, it must be durable, divisible, portable, uniform, acceptable, limited in supply and finally, fungible.

Fungibility is the property of a good or a commodity whose individual units are interchangeable and equal. Fiat currency possesses this feature. The ten-dollar bill in your pocket is acceptable everywhere regardless of its history. It does not matter if it once belonged to a criminal. Once the note makes its way to you, it is free from its historical transactions, dubious or not.

Unfortunately, Bitcoin is not yet fungible. The rise of advanced blockchain analysis tools and chain-analysis firms means that it is now possible to trace the transaction history of bitcoins and other cryptocurrencies, and the individuals who use them. Courtesy: BNC