Wall Street Week segment with David Westin, who joins us every day at this
time. David, a lot of news out there today in
the crypto space. I think we have a great guest to talk
about. Fortunately, I have somebody who knows
if will look back, which of course, is Tim Massad.
He's former CFTC chairman, fellow at Harvard's Kennedy School and a member of
PayPal's Advisory Council on Digital Currency.
Tim, thanks so much for joining us. As Ramon said, there's a lot of news
today. Among other things, that ripple
decision. Everybody's been waiting for it in this
area. And I would say it's certainly
Solomonic. I mean, sort of there's something for
everybody. Explain that decision and whether you
think it makes sense to say sometimes XRP is a security, sometimes it's not.
Well, we're still sort of waiting for the full opinion, or at least I haven't
seen it yet. But from what I have read, the judge
decided for Ripple on some very important claims and therefore ruled in
favor of its summary judgment motion, but allowed some of the SEC's claims to
go forward. I think the key issue here is how does
it end up interpreting the Howey Test? Overall, you may recall the Howey Test
is what we use to determine whether a crypto token is a security.
And it sounds like the judge leaned more into sort of Ripple's camp than the SCC
in the sense that it appears to say that unless the
arrangement really created some post-sale rights and obligations between
the parties, then maybe it's not a security.
Now, again, you sort of have to analyze the full decision to really make sure of
that, because the judge did allow the claims on the institutional sales to go
forward. The institutional sales had a lot more
optics and color around them that looked like normal securities sales, whereas
the retail sales, the programmatic sales did not.
So we'll have to wait to see. Yeah.
Important. We have to wait and see.
Fair point. There is a little irony, at least in the
initial reports, that it's the institutional people that need
protection and the retail people don't need protection.
But let me ask you whether the markets you think might be getting it right,
because XRP, the token she zoomed up last time I checked, it was 25, 37% up.
Do you think the markets got this right? Yeah, I mean, it did, as did some other
tokens. So again, if the judge basically
interpreted the Howey Test in a more conservative way than what the SEC was
arguing, then it is very significant. But look.
It's still not going to resolve some of the basic issues we have of how do we
regulate this industry. And that's kind of what I've been
arguing all along. We've been too bogged down in these
questions of is it a security, is it not a security that have prevented us from
putting in place some reasonable standards to protect investors, but also
to encourage innovation? Well, I mean, it raises the question
here, Tim, too, as to whether the industry is going to continue waiting.
I mean, there's been a lot of talk about some of these ETF filings, BlackRock,
INVESCO, WisdomTree, just to name a few. These are big established institutional
players who at least feel like that maybe there is a chance that this could
get approved. Why not?
Yeah, that's true. So on the ETF issue, the SCC has not
approved a Bitcoin ETF in the cash market and it has said that's because
that cash market isn't well regulated. Now, BlackRock and others have come
forward with some ideas on surveillance that they're hoping would persuade the
SCC. And I should note that the SEC has
approved an ETF based on Bitcoin futures because those futures contracts are
traded on CFTC regulated exchanges and of course it's being challenged in court
on, well, why have you approved of the futures ETF if you're not willing to
approve the cash ETF? But you know, the whole ETF issue is a
bit ironic in that Bitcoin and crypto tokens were meant to be things that we
all bought and sold on the blockchain. Of course, that hasn't happened.
Most people buy them through large centralized intermediaries.
And now of course we've got BlackRock of all people and other conventional asset
managers offering ETFs on these tokens. So it's an important issue.
But I think again, we still have these overall issues of how do we regulate
this market? Why is it taking so long?
I mean, you know, the CFTC inside and out, and I know it's not an easy job,
particularly for a financial product. It effectively didn't even exist more
than a decade ago here. But this has been a long time coming and
we still don't have resolution. It's a it's a number of things.
One, I think regulation is always slow to catch up to innovation, too.
This type of innovation was different from what we often see in the financial
sector. We often see intermediaries that are
already regulated coming forth with new products or new innovation.
So regulators kind of know what to do here.
This this whole sector was global from the start and it was retail from the
start, and that kind of caught regulators flat footed.
The third major thing I would point to is particular to the U.S., which is that
we have a very fragmented regulatory system.
We have different regulators for different products.
That has made us slower, I think, to respond.
But having said that, you know, other jurisdictions maybe are a little bit
ahead of us, but they're still developing their frameworks, too.
And they're they're hitting some of the same issues we're hitting.
And Tim, you have a proposal that I will call sort of general guidelines, SEC and
CFTC, and then a form of self-regulation.
You've joined with Jay Clayton, the former head of the FCC, in an op ed.
Are you getting much pick up on that? We are.
And let me let me maybe just take a moment to explain it.
What we're saying is we're all for strong enforcement.
We're just saying there needs to be a supplemental path so that we can create
some standards for this industry as it exists today for these trading platforms
as they exist today without. Being hung up on this question of which
ones are securities and which ones are not securities that can go on, that can
get litigated. But let's put in place some standards.
So we're saying the SCC and the CFTC should get together to develop those.
They can do those through a self-regulatory organization.
But let me just say one final thing. By self-regulatory organization, we
don't mean something where the industry goes off and figures out on its own how
to regulate it. We mean something tightly supervised by
the agency. A terribly important point.
Thank you so much, Tim. Really great to have you with us.
That's Tim Massad. He's former CFTC chairman and Harvard's
Kennedy School of Government Research Fellow.