Two U.S. financial regulators appear unable to reach a consensus on how to treat certain cryptocurrencies as securities or commodities. Caroline Pham, a commissioner of the U.S. Commodity Futures Trading Commission (CFTC), has suggested that a recent aggressive enforcement action against cryptocurrencies could lead to conflict between the regulator and the Securities and Exchange Commission. In a statement on March 29, Pham said the CFTC appeared to have exercised authority over certain securities in its enforcement proceedings against cryptocurrency exchange KuCoin.
The commission on March 26 accused the company of “multiple violations of the Commodity Exchange Act (CEA) and CFTC regulations,” paralleling the criminal charges filed by the U.S. Department of Justice. Pham expressed concern that the CFTC's approach could infringe upon the SEC's authority and undermine decades of robust investor protection laws by conflating a financial instrument with a financial activity, disrupting the class foundations of securities markets. Pham emphasized that owning stocks is not the same as trading derivatives.
Pham's statement reflects concerns among many U.S. lawmakers and regulators about the role the CFTC and SEC should play regarding cryptocurrencies and how they should be judged as commodities or securities. Officials from both regulators have recently disagreed over Ether's $3,503 ETH when crypto company Prometheum announced it would offer custody services as collateral. The KuCoin complaint from the CFTC suggested that Ether was a commodity. However, legal experts said the possibility of the SEC classifying ETH as a security could influence the commission's decision on several ongoing spot Ether exchange-traded fund applications.
US Court Rules in Favor of Federal Reserve, Rejects Custodia Bank's Appeal
Custodia Bank argued that without a primary account it was a second-class citizen at the mercy of an intermediary bank. The U.S. District Court ruled against granting Custodia Bank a Federal Reserve master account and also denied the digital asset bank's motion for declaratory judgment. However, Custodia reiterates that it is not backing down and is exploring all possible avenues.
In a lawsuit filed March 29 in U.S. District Court in Wyoming, Judge Scott Skavdahl dismissed Custody's attempt to secure a Federal Reserve master account. The account, often called a “bank account,” makes it easier for financial institutions to access the Federal Reserve’s payment systems. Custodia claimed that without a master account, it would be unable to offer the same crypto asset custody services as other banking institutions, which would put the bank at a disadvantage. Without a master account, Custodia, if able to operate, would be a second-class citizen dependent on dependence and loyalty to an intermediary bank, he argued.
Custody is not entitled to the requested injunction requiring FRBKC to surrender its primary account, and summary judgment on Claim II must be entered in favor of FRBKC. Custodia submitted a master account application to the Federal Reserve in October 2020. If approved, the request would give the bank access to the Fedwire network, which processed more than 193 million transactions last year. In January 2023, the Federal Reserve rejected Custodia's membership application on the grounds that its participation in the crypto space was inconsistent with the factors required by law. Custodia was one of the first Special Purpose Depository Institutions (SPDIs) in Wyoming, also known as blockchain banks.
Grayscale Launches Crypto Fund Focused on Maximizing Staking Rewards
Grayscale launches crypto investment fund with staking rewards at the forefront. Investors must have over $1.1 million in assets under management or a net worth of over $2.2 million to qualify for the Dynamic Income Fund from Grayscale. Grayscale Investments has announced an investment fund aimed at sophisticated clients who want to expose their portfolios to the returns generated through staking cryptocurrency tokens.
According to a recent statement, the Grayscale Dynamic Income Fund (GDIC) is only available to customers who hold more than $1.1 million in assets under management (AUM) or a net worth of more than $2.2 million. The Fund intends to convert staking rewards into US dollars on a weekly basis, with distributions to investors scheduled on a quarterly basis. Grayscale handles the complexity of staking and withdrawing multiple tokens, as each token has its own individual staking and withdrawal schedules and requirements. The fund's top priority is maximizing income per asset share, with capital growth as a secondary objective, according to Grayscale.
Grayscale has named three PoS tokens that will be held in the fund, including Osmosis (OSMO) with a 24% stake, Solana (SOL) with 20%, and Polkadot (DOT) with 14%, with 43% held in other tokens. According to data from Staking Rewards, OSMO currently offers a staking reward rate of 11.09%, SOL is at 7.42%, and DOT is at 11.9%. The Grayscale Bitcoin ETF charges a management fee of 1.5% annually, five times higher than the 0.30% average of other spot Bitcoin ETFs. However, Grayscale continues to face regulatory hurdles in obtaining approval from the U.S. Securities and Exchange Commission (SEC) for its Ethereum Futures exchange-traded fund (ETF).
