Crypto Regulatory Initiatives Show SEC’s Dominance Among US Regulators: JPMorgan

Recent regulatory initiatives have shown the Securities and Exchange Commission’s (SEC) dominant position in the U.S. in regulating the digital assets space, JPMorgan said in a research report last week.

Its actions have also shown the SEC’s bias in viewing most crypto, with maybe bitcoin (BTC) as the only exception, as securities, the report said. It noted that SEC Chair Gary Gensler started pushing back against implementing special rules for the crypto industry in September, arguing that most cryptocurrencies should be classed as securities and thus be regulated under existing securities laws.

“Given the above it should not come as a surprise that the SEC looks at the offering of a staking service as being similar to offering any other type of security,” the note said. This opens the way for other firms offering staking services to have to be registered as a securities platform with the SEC, the report added.

The bank predicted more regulatory actions on stablecoin issuers, custody and protection of investors’ digital assets, and on the unbundling of broker/trader/lending/clearing/custody activities.

It also expects mandated regular disclosure, reporting and auditing of reserves, assets and liabilities across major crypto entities, analysts led by Nikolaos Panigirtzoglou wrote. These regulations will lead to “convergence of the crypto ecosystem towards the traditional financial system over time,” he added.

“Staking business should shift more towards direct staking for institutional investors and more towards decentralized (DeFi staking) alternatives for retail investors,” the note said. DeFi is an umbrella term for a variety of financial applications carried out on a blockchain.

Ether (ETH) will likely see additional selling pressure on Ethereum following the forthcoming Shanghai upgrade, as crypto exchange Kraken has 1.2 million ETH staked on the network, a significant amount of which is owned by its U.S. clients. Adding the 1 million ether from staking rewards that could be withdrawn immediately after the upgrade, the downside risk to ether becomes even more significant, the note added.

Read more: Bernstein: SEC Tightening of Crypto Regulations Is Not an Existential Threat.