How the US Government Shutdown Is Halting Crypto Progress on Wall Street

The longest government shutdown in U.S. history is hurting the crypto industry, too.

As the impasse in Washington stretches into its record-breaking fourth week, the closure of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) has put key developments – namely, the approval and launch of products and services involving cryptocurrencies – on hold.

Notably, the launch of Bakkt’s bitcoin futures market was delayed in part by the company’s inability to secure approvals before Dec. 22, 2018, when the shutdown began. The platform, created by Intercontinental Exchange (parent of the New York Stock Exchange), is in a holding pattern until regulators can open a 30-day public comment period. A new launch date for the platform, which most recently was set for Jan. 24, has yet to be announced.

This lack of approval has not deterred Bakkt from building up its platform: the company announced Monday it was acquiring parts of independent futures commission merchant Rosenthal Collins Group (RCG) to bolster its regulatory compliance chops.

“We made great progress in December,” Bakkt CEO Kelly Loeffler wrote in post published on Medium on New Year’s Eve, “and we’ll continue to onboard customers as we await the ‘green light.’”

Other startups are in a similar state of limbo.

ErisX, a trading platform that recently raised $27.5 million from prominent investors, is also waiting for furloughed federal employees to return to work. The platform aims to be a regulated futures market and clearinghouse, which requires approval from the CFTC.

“ErisX’s interaction with the CFTC has been both positive and productive,” CEO Thomas Chippas told CoinDesk, adding:

“During this government shutdown we have continued our platform development efforts. We look forward to this current impasse being resolved and re-engaging with [CFTC] staff on our DCO [derivatives clearing organization] application.”

When ETF?

Exchanges aside, even certain products are now potentially at risk.

Perhaps one of the most highly anticipated bitcoin-related products is an exchange-traded fund, or ETF. The SEC currently has one rule change proposal sitting before it, filed by VanEck, SolidX and Cboe.

The proposal has already been delayed a number of times, and now faces a final deadline of Feb. 27. If the SEC does nothing, under existing law, the proposal would be approved. Specifically, Title 15 of the U.S. Code states that any proposed rule changes “shall be deemed to have been approved by the [SEC] if … the [SEC] does not issue an order approving or disapproving the proposed rule change.”

However, some legal experts say an approval-by-default is unlikely to happen, even if the shutdown drags on.

Ethan Silver, chair of the broker-dealer practice at law firm Lowenstein Sandler, anticipates that, should the shutdown continue, any staffers who remain on duty would reject the application.

“I think if they were forced to deal with it, they would sooner deny it than be put in a position [where it is approved on a technicality],” he said, explaining that the regulator would likely cite “market integrity” or a similar emergency contingency as a reason for the denial.

Similarly, Jake Chervinsky, a lawyer with Kobre & Kim, said on Twitter that the SEC would likely find some way to reject the proposal during a protracted shutdown, a view also shared by attorney David Silver of the Silver Miller law firm.

The commission has yet to approve any crypto ETFs, rejecting nearly a dozen in 2018. That has not yet deterred companies from trying to be the first to bring such a fund to market, however. Just last week, Bitwise Asset Management announced its intention to launch a bitcoin ETF with NYSE Arca.

While the company has filed an initial registration form, NYSE Arca has not yet submitted the rule change proposal, and so the SEC cannot yet consider the ETF.

Please advise

Beyond launches, the crypto space – at least in the U.S. – is still waiting for increased clarity and official guidance on how to safely handle digital assets.

Vince Molinari, co-founder of the regulated trading platform Templum, told CoinDesk that initiatives the SEC may have planned, such as guidance on custody, are likely to be delayed.

“I think the entire space gets pushed back,” he said. “It could be a quarter or two before things go back, it could be longer depending on how long the shutdown’s in effect.”

Compounding the issue, he noted, is that even after the shutdown ends, staffers have to catch up on anything they missed during the furlough.

“There’s talk about the [initial public offering] calendar being pushed back,” he said.

Mining manufacturer Canaan is at least one crypto firm reportedly considering a U.S. IPO. While the company is said to be in the early stages of this decision, Molinari believes an extended shutdown could postpone IPO approvals “indefinitely.”

The issues mirror those faced by the financial technology sector in the U.S. more broadly, as noted in an analysis piece published by Roll Call, a news site focused on the U.S. federal government.

Roll Call noted that the CFTC, which has requested information on ether and the ethereum network, is unable to review any comments already submitted. In its request for information, the CFTC noted that any submissions would “advance [its] mission of ensuring the integrity of the derivatives markets,” which may indicate the regulator is assessing a potential ether futures market.

Eyes on the Hill

As regulatory activity slows to a halt, a crypto industry group is focusing its efforts on Capitol Hill, where lawmakers in the House and Senate are still open for business.

“We’ve been making real progress engaging with lawmakers and regulators on the merits of the token economy in the last several months, but the shutdown puts the handbrake on some of those conversations,” Kristin Smith, director of external affairs for the Blockchain Association, told CoinDesk.

She added:

“There are pressing concerns on a number of fronts – taxes, SEC guidance, Treasury guidance – and the shutdown, at the very least, pushes those issues to the back burner for the foreseeable future.”

The SEC could not be reached for comment. When contacted via email, a spokesman’s auto-reply explained:

“Due to a lapse in appropriations for the federal government, the U.S. Securities and Exchange Commission is currently closed. I am currently out of the office, and will return to the office once an appropriation has been enacted. During the closure, I will not be monitoring or responding to my emails. Thank you.”


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Author: Nikhilesh De, Zach Seward 
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Government Shutdown Delays Launch of New Tech Products

It’s day 21 of the US government shutdown, and the tech industry is starting to feel the heat.

 

Tech lovers may see fewer cutting-edge gadgets hitting the market in the next few months.

That’s because the Federal Communications Commission, the Food and Drug Administration and other US agencies that certify the safety of consumer-electronics devices are closed due to the government shutdown, now in its 21st day.

And if the government doesn’t reopen soon, the shutdown could also affect the rollout of the next generation of wireless networks, built around 5G technology that promises to make them significantly faster and more responsive.

Trade group the Telecommunications Industry Association, which represents makers of telecom gear, said Friday that the shutdown is slowing the introduction of new connected devices that need certification from the FCC and that the closure could ultimately hamper 5G deployments.

The shutdown “comes at a vital moment when the US is competing to stay ahead of the world in the race to 5G,” said TIA Government Affairs SVP Cinnamon Rogers. If companies can’t get their required FCC thumbs-up, there’ll be a “serious and negative impact on the approval of new connected devices that are designed to enable both 5G deployment and the full ecosystem of next generation technologies that 5G will support,” he added in a statement.

The partial shutdown, which began Dec. 22 after the House of Representatives and Senate failed to come to agreement on President Donald Trump’s demand for $5 billion to fund work on a border wall, doesn’t look to be ending anytime soon. Neither congressional Democrats nor Trump show signs of caving to the other’s demands.

The impasse is having real economic consequences for 800,000 federal workers, who on Friday didn’t receive their first paycheck since the shutdown started. But the ripple effects are now starting to be felt more widely, including in the tech industry, where some device makers are being forced to put product launches on hold.

What’s being hit by the shutdown

The FCC officially ceased most operations Jan. 3 but kept some going, such as work on the 5G spectrum auction currently underway. But the agency furloughed more than 80 percent of its staff and shuttered several databases used by certification bodies authorized to work with product developers and labs.

The FCC requires most new devices that emit radio frequency energy to be certified to ensure that the energy doesn’t harm humans or interfere with other products or services that use radio spectrum. Almost all the actual testing is outsourced to FCC-authorized companies or Telecommunications Certification Bodies. For many products, though, the FCC must provide the final sign-off.

When the agency detailed its plans for the shutdown, it spelled out that these third parties wouldn’t “be able to upload applications for equipment authorization or issue grants of certification,” because they’d lack access to the necessary database.

“Any product with a transmitter in it is not getting certified until the shutdown ends,” said Ron Quirk, an attorney heading up the IoT practice for Marashlian & Donahue PLLC. “And if it’s not been certified by the FCC, manufacturers and equipment suppliers can’t sell it, or even market it, in the US.”

What kinds of products are we talking about? Think new phones, tablets, Wi-Fi routers and a host of internet-of-things gadgets, like the net-connected ball that watches your pets, the connected sensors for your home water system to combat leaks and waste, or the $400 internet-connected juicer.

And it’s not just FCC-certified devices. The shutdown could also impact some consumer-electronics products that’re considered medical devices and thus need approval from the FDA. That includes health care devices shown off at CES 2019 in Las Vegas this week: things like DIY sonograms, watches that measure your blood pressure, or vests that alert patients they’re in heart failure.

It’s unclear how many consumer-electronics products may be affected by the closure, since it’s hard to know where specific companies and devices were in the approval process when the shutdown started. Neither the FCC nor the FDA returned calls seeking comment.

But the list of new IoT devices needing FCC approval alone could be in the thousands, considering the number of new gadgets expected to flood the market over the next few years. In 2017, there were 8.4 billion connected devices. The volume should hit 20.4 billion by 2020, according to analyst firm Gartner.

FCC Commissioner Jessica Rosenworcel took to Twitter to comment on the sweeping effects of the shutdown on equipment makers.

“Go ahead, take a look at the back of the nearest electronic device,” she wrote in her tweet. “You’ll see an [FCC] number. The agency certifies every innovative mobile phone, television, and computer that emits radio frequency before they can head to market. Guess what is not happening during the shutdown?”

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The FDA’s policy for device certification during the shutdown is somewhat different than the FCC’s. The agency has said it’ll still continue to process applications submitted before the shutdown took effect, but it won’t process any new applications. Still, attorneys from the law firm Hogan Lovells, who shepherd clients through the FDA approval process, say the backlog that’s growing during the shutdown will be a problem once the government reopens.

“Depending on the length of the shutdown, medical product centers may well be looking at a sizable backlog of applications to triage when the agency is fully operational again,” they wrote in a blog last month. “Thus, if the current shutdown persists, industry should anticipate that certain agency delays will likely continue for some time.”

Smaller companies to feel the heat

Experts also point out that it’s smaller startups, rather than huge tech companies, that’ll suffer the most from the shutdown.

“It’s companies focused on creating a ‘unicorn’ business around one or two key innovative products that will be affected most,” said Marc Martin, a partner at Perkins Coie LLP, who heads the firm’s communications industry group. “They don’t have a vast array of products in the market to keep them going.”

By contrast, companies like Apple, Samsung, and Sony might not be happy about putting their plans on hold, but delaying a product launch by weeks or even months “isn’t going to bring down their business,” Martin said.

Still, Martin and Quirk say their clients aren’t freaking out just yet. The timing of the shutdown, over the holidays, has likely softened the blow, since it’s typically a slower period. But concern is growing.

“It’s one thing if the shutdown lasts a few weeks,” Martin said. “Everyone can take some delay in stride. But if it goes on another month or two months, I’m going to be getting some angry calls.”


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Author: Marguerite Reardon
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Prolonged Government Shutdown Hangs Over Wall Street; How Will This Affect Crypto?

The debate over President Trump’s border wall has unveiled new partisan dysfunction in Washington as the United States on Saturday faced its third government shutdown in a year. The partial shutdown, which risks extending into the holidays, presents fresh headaches for Wall Street following the worst weekly selloff in a decade. For cryptocurrency investors, the power of holding non-correlated assets could become apparent in the near future.

For more context behind the latest developments on Wall Street and in crypto-land, read Hacked.com’s Week in Review.

US Government Grinds to a Halt

A Senate impasse over the funding of President Trump’s $5.7 billion border wall triggered a partial government shutdown on Saturday, with both parties blaming each other for the lack of resolve. President Trump has referred to it as a “Democrat shutdown” that “could be a long stay,” referring to a prolonged interruption of federal government functions. Democrats, meanwhile, accused Trump of throwing another “temper tantrum.”

Trump, who has put his Christmas holiday on hold, tweeted Saturday morning that his administration was negotiating with Democrats over a new budget deal that includes the “desperately needed Border Security” wall.

Funding for the wall was approved on Thursday in the House of Representatives but was struck down in the Senate by a united Democrat front.

Investors on Edge

The impasse couldn’t have come at a worse time for stock traders, who have seen their yearly gains wither away in the last three months. Stocks are now trading at their lowest level in 16 months, with the Dow Jones Industrial Average recording its worst weekly slide in a decade. On Friday, the Nasdaq Composite Index fell to the bears for the first time since 2009, a dramatic role reversal from the tech-induced bull market that characterized the post-crisis era.

Signs of a looming government shutdown Friday wreaked havoc on Wall Street, and a prolonged impasse could have adverse effects on what’s left of the bull market for the S&P 500 and Dow Jones Industrial Average. Investors’ collective angst is well documented by the CBOE VIX, which tracks expected volatility over the next 30 days. The so-called “fear index” settled above 30 on Friday for the first time since February and is on track for a yearly gain of 173%.

Influence over Crypto

The possibility of an extended government shutdown could impact the cryptocurrency market both directly and indirectly. For starters, it threatens to further delay the proposed launch of Bakkt, Intercontinental Exchange’s forthcoming crypto trading platform. Bakkt still requires key approvals from the US Commodity Futures Trading Commission (CFTC), a federal body that is affected by the Senate impasse. As it currently stands, Bakkt is unlikely to get the approvals needed to launch by the proposed date of Jan. 24. Although the initial delay is unrelated to the government shutdown, a failure to agree on a new budget will certainly affect the CFTC’s timeline.

Once launched, Bakkt could have a dramatic influence on bitcoin futures. Read more.

In terms of indirect consequences, politically-inspired volatility on Wall Street could play into the hands of bitcoin and other digital currencies that have previously enjoyed safe-haven status among investors. Cryptos may have struggled to demonstrate their utility as spending instruments, but until now have been an excellent store of value. The value of safe-haven investments in the current climate is demonstrated by gold‘s recent six-month peak. That being said, the key selling point here is whether you believe bitcoin has reached bottom or, at the very least, is approaching the final stage of the bear market.

Or it could be that bitcoin continues to establish itself as a non-correlated asset that trades independently of broader market moves. We’ve spotted some elements of correlation recently, but otherwise, bitcoin is generally not closely influenced by stocks, monetary policy, and economic data (it is influenced by FUD/FOMO, but we don’t watch the economic calendar to play BTC).

In any case, a prolonged bear market in stocks, should it materialize, could finally test the hypotheses of bitcoin’s most ardent backers: that it is a superior store of value, better suited for periods of volatility and destined to compete with fiat on a global scale.


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Author: Sam Bourgi
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