No cryptocurrency regulation is currently in place in the United States. Still, the SEC is proposing that hedge funds disclose their crypto exposure, using a form developed after the 2008 financial crisis. Form PF would require large funds, which typically have opaque operations, to reveal what and how much crypto they own, and the full extent of their exposure. What could this mean for wider crypto regulation? Ari Redbord, Head of Legal and Government Affairs at TRM Labs, joins Closing Bell to discuss.

Closing Bell

SEC Proposes Hedge Funds Disclose Crypto Exposure: How Could This Impact Regulation?

Welcome back to closing Bell and Cheddar news. Everyone while the SEc exploring a new strategy for identifying risks in the crypto and digital asset market. And the agency proposing that large hedge funds should report all crypto holdings and exposure through a confidential filing form known as form PF While the document isn't new, crypto as a reported asset class actually is. So what could this mean in terms of crypto regulation? Well, joining me now is our red board ahead of legal and government affairs at TRM labs, the Blockchain intelligence firm are, it's good to have you, are you surprised that the sec is pushing for this sort of thing first, kristen no, thank you so much for having me. And I cannot believe you're making me go after baby giraffes. Um, so I don't, I don't know how I'm gonna follow that, but but yeah, no, look, I know it's not a huge surprise. I think for a number of reasons. One because of sort of the regulatory focus on crypto over the last, you know, few years. Look, I think that the, the, the SEC and CFTC were really sitting down to talk about how to revise this form and inevitably crypto is gonna come up into that conversation. I think you also sort of see, um, that this came in the form itself came out of the 2008 financial crisis. And I think that that that regulators are drawing some parallels, obviously at a much smaller scale. But what we've seen in sort of the crypto markets. And with the collapse of stable coin project terror and a number of other crypto projects is that there are some systemic concerns and the reality is those systemic issues, Terror and others have not yet, um, made their way into the larger financial system. But I think the view of regulators is as there's more activity in crypto, those risks could be greater and they want to ensure it with these types of actions. Okay, so this is that's really good breakdown. Ari I want to just simplify for our viewers to hear by regulating hedge funds by requiring them to file these forms. What sort of information will the sec be able to glean? So that in hopes, right, average investors will be protected at the end of the day. Right? Just like the initial intent of this forum, it's very much to understand, hey, look, if you're a regular investor, what, what, what are the assets or or in this case, I think there's really two questions in this proposal. One is going to be you you know, what, what amount of Cryptocurrency is in these funds and then two, it may actually ultimately require what types of crypto assets. So a consumer an investor can make a decision about whether or not to get involved in in a fund. And I think that's really the bottom line, it really becomes sort of a consumer protection investor related issue. And I think it's just really expanding that to crypto assets, you know, in terms of this requirement. So I would suspect ari that you would see this as a positive for the crypto market. What do you think? Look, I think overall, what we're seeing more and more is this move to sort of more regulation in the space? I mean, this is just a tiny piece of a much larger puzzle, even just including the sec right over the last, you know, really, even several weeks, we've seen a number of enforcement actions around. I see, oh, scams or initial coin offerings. We've seen, um, we've seen a insider trading case brought against a former coin based employee. So we're seeing more and more enforcement and regulatory action come from the sec. We're also seeing more conversations on Capitol Hill about how to regulate this space. What should the sec be regulating? What should the cFTC be regulating? What happens when crypto is used more for payments? So this is all sort of a much smaller piece of a larger puzzle that's going on in this sort of regulatory conversation today, by regulating in this way, I mean, how much money would be impacted trillions of dollars? Is that's what is that? What is on the line here? Well, look, you know, if the crypto economy grows and scales the way we think it can potentially, and that's why regulators are trying to get ahead of. I mean, today, this regulation is not as much for today, that is as it is for a future state where crypto can potentially cause more systemic risks than it does today. Today, we're talking about, you know, hundreds of millions or billions, uh, there is a world in which we are talking about much more and that's the world in which regulators are attempting to anticipate with with these types of with these types of requirements. So I want you to break this element down as well because I think people sometimes they might get confused, right one day they're hearing that the CFTC is gonna be regulating the crypto market. Other times it's the SEc. So explain the difference here and why the SCC in particular is interested in looking at this? Yeah, it's literally the million dollar or I guess we'll say billion dollar question, right. You know, look, I think the SEc has stepped up and said, hey, we've identified certain crypto assets and, and and they would maybe say most as having the qualities of securities and and we believe we're the regulator. And there are a number of cases now that will go through court. Um, that will ultimately define certain crypto aspects, one involving X. R. P. A number of other. Now in this new enforcement action against a coin based employee, they've identified certain coins as securities. So the question is going to be is are certain crypto assets securities. Right? That's one question then the next question is, are they commodities? And should they be regulated by the Cftc. And I wish I had a better answer for you today. But I think what we're going to see over the next year or so is a more of a clear, uh, comprehensive regulatory or legal framework for crypto assets. That is going to start to define some of these terms. The closest we've come so far in the U. S. Is a bill by senators, Loomis and Gillibrand, which is basically a bipartisan framework that spells out, this is when the sec is involved, this is when the CFTC is involved and this is when others are potentially involved. But we don't have that yet in the United States. I should point out that it's starting to really happen globally. We've seen recently Mika, which is the marketing, crypto assets regulation or legislation coming out of the EU, which is very much sort of a lemon jell o brand for for europe, that really provides some more of this clarity. But today we don't have definitions necessarily. And that's what that's what's causing. I think, you know, some regular, some enforcement or RAY regulation by enforcement from the SEc and others, which, which look at the end of the day, business needs clarity. And we've got to get to that point, that is very true as some sort of framework and I think actually, many people that I've interviewed here, ari on a daily basis say that they want some framework as well. We're going to leave it there are the Red Board, head of legal and government affairs at TRM Labs, Blockchain intelligence firm. ARI. Thank you again.