Grayscale CEO says courts involvement threatens crypto innovation

Category: Blockchain Crypto Regulatory
Posted by Content Team

Michael Sonnenshein, CEO of the asset management company Gray Investments, raised flags about potential economic harm in the crypto market. According to Sonnenshein, the piecemeal cryptocurrency industry regulation of the U.S. Securities and Exchange Commission could lead to an exodus of crypto firms from the country.

In a recent Fox Business interview, Sonnenshein criticized the nature of the SEC’s enforcement-heavy approach.

If every crypto issue needs to go to a court of law, then as a country, we are squashing the innovation taking place here,” Sonnenshein said.

Sonnenshein restated the industry’s requirement for clear definitions of crypto commodities and securities. He also mentioned well-defined regulatory frameworks for stablecoins. He asserted that this approach would deter businesses from shifting operations beyond the nation.

Adding further clarity to this would ensure that companies and people working on crypto don’t leave the U.S. because our regulatory environment is hostile toward the asset class but instead embraces it,” he said.

Brad Garlinghouse, CEO of blockchain-based digital payment network and protocol Ripple, echoed Sonnenshein’s sentiments. After Ripple’s partial victory against the SEC on July 13, Garlinghouse accused the SEC of aiming to stifle innovation and the U.S. cryptocurrency industry.

Garlinghouse insisted that Ripple’s lawsuit marked only the inception of a series of cases. The CEO said while Ripple’s battle has come “to a close, for so many others, it’s just starting, so the fight for clarity has to continue.

Despite the ongoing situation, Sonnenshein maintained his optimism regarding Congress’s ongoing efforts to provide regulatory clarity for the industry.

“Much of this legislation that this Congress could indeed pass; may offer the industry the necessary clarity to advance in a manner that embraces crypto,” Sonnenshein said.

The Grayscale vs. SEC lawsuit

As of July 31, Cointelegraph reported the House Financial Services Committee’s approval of the Financial Innovation and Technology for the 21st Century Act by a 35 to 15 vote.

The act aims to establish registration regulations for crypto firms falling within the jurisdiction of the Commodity Futures Trading Commission or the SEC.

While Congress’s direction garners Sonnenshein’s confidence, he advocates for the SEC to focus on Bitcoin exchange-traded funds (ETFs).

Last year, the SEC denied Grayscale’s Bitcoin trust-to-ETF conversion plan. The commission cited concerns over the crypto market’s vulnerability to fraud and manipulation.

In June 2022, Grayscale filed a lawsuit following the denial of its bid to transform its Bitcoin trust, recognized as GBTC, into an ETF. Grayscale urged the D.C. Circuit Court of Appeals to reverse what it deemed an arbitrary and biased ruling, especially as the SEC had greenlit ETFs linked to Bitcoin futures.

Although the ruling encountered several postponements, the SEC dismissed the application the past summer. The SEC cited Grayscale’s inadequate responses to queries concerning market manipulation and safeguarding investor interests.

According to Sonnenshein, the SEC must evaluate the correct criteria for suitable Bitcoin ETFs to introduce to the market.

When I think about the process that the SEC should be untaking here, it’s really not to pick winners and losers; it is to ensure that all the right disclosures are put out there for investors,” he said.

The SEC also postponed its decision on ARK Investment Management’s proposed spot Bitcoin ETF on August 11. Following its publication in the Federal Register, the SEC initiated a public comment period for the ARK 21Shares Bitcoin ETF. This delay represents the latest step in the regulatory process for approving a spot crypto ETF in the U.S.

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