Blog Article

What’s new with cryptocurrency? What all financial advisory firms need to know

Jul 12, 2023

In the past several months since the collapse of the FTX cryptocurrency exchange, there have been many developments in the financial landscape – many of which could affect your financial advisory firm.

These are five important updates regarding the regulatory environment for cryptocurrency and what they could mean about the future of cryptocurrency.

The collapse of the FTX cryptocurrency exchange did a number on the financial services industry. As a result, many advisers and investors became apprehensive about the stability of cryptocurrency as an investment option, and regulators sped to address the growing concerns.

In this blog, we’ll cover five important updates regarding the regulatory environment for cryptocurrency and what they could mean about the future of cryptocurrency.

Five updates about cryptocurrencies for your financial advisory firm

From the changing prospects of a Bitcoin exchange-traded fund (ETF) and the evolving sentiments within hedge funds, the last several months have brought many updates about cryptocurrencies for your financial advisory firm. These changes include:

  1. Rejection of Spot Bitcoin ETF Filings.

The Securities and Exchange Commission (SEC) recently rejected filings for a spot Bitcoin ETF from prominent asset managers. The SEC cited the filings’ lack of clarity and comprehensiveness as the reason for rejection. Although the decision is a setback, crypto-enthusiasts remain optimistic, believing that these ETFs will eventually gain approval.

The rejection also signals a positive sign as the SEC provided specific guidance on areas that need improvement, indicating their readiness to approve such products.

2. Increased focus on surveillance-sharing agreements.

Previous rejections of Bitcoin ETFs were primarily due to concerns about fraud and market manipulation. However, the latest round of rejections centered on insufficient information regarding “surveillance-sharing agreements” with Bitcoin exchanges.

The fact that the SEC highlighted this specific requirement implies that once the exchanges address the concerns and resubmit their applications, approval is likely imminent. The emphasis on surveillance-sharing agreements aims to ensure market integrity and investor protection.

3. SEC’s crackdown and clarity in the regulatory landscape.

The SEC has recently intensified its scrutiny of cryptocurrency players and filed a lawsuit against a leading cryptocurrency exchange. These actions demonstrate the SEC’s commitment to enforcing rules and regulations within the crypto space.

By cracking down on rule-breakers, the SEC aims to foster an environment that encourages compliant firms to operate within the law. As the agency becomes more confident in its ability to identify and prosecute market manipulation, it paves the way for the evolution of cryptocurrency within the field.

4. Hedge funds’ persistence in crypto investments.

Despite the challenges posed by market volatility and evolving regulations, hedge funds in particular remain resolute in their conviction that digital assets are a vital part of their investment mix. According to a report by PwC, the Alternative Investment Management Association and CoinShares, traditional hedge funds globally have slightly decreased their investments in crypto assets, however, they still intend to maintain or increase their exposure to cryptocurrencies. This stance is supported by the expectation of higher market capitalization for crypto assets by the end of 2023.

5. Regulatory concerns and barriers to investing.

Transparency and regulatory requirements have emerged as significant concerns for traditional hedge fund managers considering crypto investments. To enhance trust and investor protection, respondents in a survey expressed the need for mandatory segregation of assets, financial audits and independent statements of reserve assets. Regulatory uncertainty and barriers also weigh on investment decisions, prompting funds to wait for greater transparency, regulatory certainty and risk management measures. Client reaction, lack of regulatory clarity, unreliable third-party data and investment mandate constraints remain the primary reasons for hedge funds’ hesitation to invest in crypto assets.

The evolving regulatory landscape surrounding cryptocurrency presents both challenges and opportunities for employees at financial advisory firms. It’s also crucial for financial professionals to stay informed about these developments as they navigate the changing landscape of cryptocurrency regulations.

As your financial advisory firm navigates the ever-changing financial landscape, protecting your clients’ best interest must remain a top priority of your regulatory compliance program.

Interested in learning more about the cryptocurrency environment and how your firm can maintain compliance despite evolving regulations and requirements? Meet with an expert compliance consultant today.