Jay Clayton’s leaving the SEC
Bitcoin,  Cryptocurrencies,  Regulation,  United States

Jay Clayton’s leaving the SEC. Could this be crypto’s big break?

There are hopes that his successor as SEC commissioner will increase the likelihood of a Bitcoin exchange-traded fund finally being approved

A political row has sent heads rolling in the U.S.—and it could send huge shockwaves through the crypto industry, too.

Geoffrey Berman has been ousted from his high-powered position as the U.S. Attorney for the Southern District of New York.

President Donald Trump has nominated SEC chairman Jay Clayton as his successor—and now, nerves are growing as to who will be tapped to take on his regulatory role.

‘Good for Bitcoin’

During his tenure at the SEC, Clayton was far from a friend to the burgeoning cryptocurrency sector—very much falling into the category of a Bitcoin skeptic.

The commission has been renowned for entering into long-running battles with projects over token sales it deemed unlawful, unregistered securities offerings. Just last month, the Telegram Open Network was left in tatters after such a bitter dispute over its $1.7 billion SAFT sale, which aimed to get around the securities regulations that killed off ICOs

Clayton’s reign also saw the SEC sue Kik for $100 million after it too allegedly conducted an illegal securities offering. At one point, the messaging app was on the brink of shutting down.

But perhaps his biggest slight against crypto has been his refusal to give a green light to a Bitcoin exchange-traded fund (ETF.) Every proposal has been rejected in the three years he’s served as chairman. That’s despite the valiant efforts of crypto-friendly SEC commissioner Hester Peirce, who has repeatedly warned that the regulator’s tough stance “impedes innovation in this country and threatens to drive entrepreneurs, and the opportunities, they create, to other jurisdictions.”

A Bitcoin ETF would be significant because it would allow investors to gain exposure to the cryptocurrency’s price movements without having to own the asset outright.

Even without knowing who the next SEC chairman is going to be, heavyweights in the crypto space wasted little time in toasting Clayton’s departure.

“The SEC chair is one of the most important U.S. officials for crypto regulation,” wrote Jake Chervinsky, general counsel to the DeFi lending platform Compound “Chairman Clayton’s replacement will have a massive impact on the industry (for better or worse). Our chance at ETF approval & clarity on a wide range of issues for years to come hangs in the balance.”

Galaxy Digital CEO Mike Novogratz struck a slightly more optimistic tone, tweeting: “Have to think Jay [Clayton] leaving the SEC is good for BTC. Makes ETF more likely. Let’s hope his successor is a futurist.”

Clayton’s bigger fish

Michael Arrington, the founder of Arrington XRP Capital, added: “Whatever else, Jay Clayton leaving the SEC is a win for crypto and sound money fans across the world. Hopefully he does less damage as a US atty.”

Arrington touched on a good point in his tweet: Clayton may be leaving the SEC, but he still has the potential to cause headaches for crypto businesses with his new role heading up New York’s powerful Southern District office.

Berman didn’t make life easy for the industry and spearheaded a few high-profile prosecutions himself—among them the ongoing prosecution of Virgil Griffith, the Ethereum developer who violated sanctions by travelling to North Korea for a cryptocurrency conference. Berman’s indictment alleges Griffith aided the rogue regime in using cryptocurrencies to bypass sanctions.

The Southern District of New York also played a starring role in the conviction of Silk Road founder Ross Ulbricht, who is now serving a life sentence in prison. In addition, Berman charged Crypto Capital Corp Principal Oz Yosef in connection with the theft of $880 million from the Bitfinex exchange.

Crypto-Mom remains

Now that Jay Clayton’s leaving the SEC, there are a couple reasons to be optimistic. Commissioner Peirce—affectionately known as “Crypto Mom” in the industry—has been nominated for a second term in the role, which would see her stay in post until 2025. A strong advocate of Bitcoin ETFs, Peirce’s continuing role on the Commission means the internal pressure to approve a Bitcoin ETF looks unlikely to subside any time soon.

Clayton’s departure could also give new impetus to the latest investment firms to try their luck by applying to the SEC for approval to launch a Bitcoin ETF.

In documents submitted to the commission shortly before the announcement of Clayton’s departure, traditional investment firm WisdomTree set out plans to launch an ETF that would invest up to 5% of net assets in BTC futures contracts and the rest in traditional commodities. This is a hugely watered-down proposal when compared with unsuccessful attempts by the likes of the Winklevoss-owned Gemini exchange, the Chicago board of exchange (Cboe), and Bitwise Asset Management. The latter made a huge stir when claiming that 95% of all bitcoin trades were fake or fraudulent as part of its ETF proposal. (But, it added, its research found 10 were honest enough to be trusted to support an ETF with sound market data.) 

At those times, the SEC—and Clayton in particular—expressed concerns about the risk of fraud and potential lack of investor protection, most notably in regard to the risk of market price manipulation. Last September, Clayton warned that anyone who thinks “there’s the same rigor around that price discovery as there is on the Nasdaq or New York Stock Exchange, and the protections, they are sorely mistaken.”

Will just 5% exposure in an ETF be easier for the SEC to stomach now? Only time will tell.

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Connor Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.