Source: Davis Polk
If a digital asset falls into any of the three categories below, it is deemed a “restricted digital asset” and is subject to securities regulations. Otherwise, it is deemed a digital commodity.
- Category 1:
- Development Status: any
- Holder: digital asset issuer
- Distribution: any
- Category 2:
- Development Status: any period when any related blockchain system is not a functional system or is not certified as a decentralized system
- Holder: affiliated person or related person
- Distribution: any
- Category 3:
- Development Status: prior to the first date on which each related blockchain system is a functional system and is certified as a decentralized system
- Holder: not the issuer, a related person or an affiliated person
- Distribution: distribution other than an end user distribution or a transaction not executed on a CFTC-registered digital commodity exchange
As these factors can change over time, and a digital asset can check multiple boxes at once (i.e. multiple types of holders or methods of distribution), the Act as currently written both allows for the possibility of:
- reclassification from a commodity to a security (or vice-versa); and/or
- a single, fungible digital asset to simultaneously be classified as a commodity and and a security depending on who holds the asset and how it was acquired.
This is not ideal given the potential implications for market fragmentation. For example, if restricted digital assets and digital commodities are not allowed to trade on the same venue, you could have instances in which digital assets are forced to de-list from one venue and re-list on another as the transition from security to commodity, forcing non-technical end-users to potentially have to take self-custody and/or send their digital assets on-chain in order to access liquidity.
However, 15 years after the creation of bitcoin and almost a decade after the Ethereum Network went live, lawmakers may suddenly be in a mood to not let the perfect be the enemy of the good, or even the slightly better, when it comes to regulating digital assets.
Semler Scientific Adopts Bitcoin Treasury Strategy
From PR Newswire:
“Semler Scientific, Inc. (Nasdaq: SMLR), a pioneer in developing and marketing technology products and services to healthcare providers to combat chronic diseases, announced today that its board of directors has adopted bitcoin as its primary treasury reserve asset. In addition, Semler Scientific announced that it has purchased 581 bitcoins for an aggregate amount of $40 million, inclusive of fees and expenses.”
Semler becomes the third US publicly traded company to adopt bitcoin as a treasury asset prior to having any bitcoin-related businesses after MicroStrategy and Tesla.
Interestingly, all three of these companies are founder-led and controlled by Eric Semler, Michael Saylor, and Elon Musk, respectively.
Perhaps it is simply easier to make and implement the decision to adopt bitcoin as a treasury asset when one person has outsized influence and control over a company.
Or, perhaps when the leader of a business enterprise is an owner and not merely a paid steward, they are more likely to exhibit a low time-preference and take a long-term view on the growth and sustainability of their business, and implement a bitcoin standard.
Gemini Earn Users Recover 97% Of Asset In-Kind
In the latest bankruptcy resolution to come out of the great 2022 crypto-bust, Gemini Earn users yesterday received 97% of their stranded digital assets back in-kind.
Receiving the assets back in-kind is huge for Earn customers because of the price appreciation of the assets since Genesis, the lending desk the assets were lent out to, halted Earn customer withdrawals. Gemini claims the notional value of the recovery is 232% of the value of the assets from when Genesis halted withdrawals.
The total sum of assets returned to users was $2.18 billion. As these assets were previously illiquid, there is a possibility of some price pressure here in the short-term, but, that notwithstanding, this is a fantastic outcome for Gemini Earn users given the circumstances and given the outcomes of similar situations at FTX, Celsius, and Voyager.
It’s a brief reminder of the financial and emotional pain that so many endured in 2022 due to counterparty risk and poor custody solutions.
Never again.
Onramp strives to provide a better custody solution by eliminating single points of failure and distributing counterparty-risk across multiple institutions with Multi-Institution Custody.
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