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Dubai’s financial services regulator said on Monday that it will develop a regulatory framework for the cryptocurrency sector.

Announcing the effort in its business plan for 2021-2022, the Dubai Financial Services Authority (DFSA) said “a regulatory regime for digital assets (such as tokenized securities and crypto-currencies)” will be built.

“The DFSA is committed to remain ‘open for business’ with respect to innovation in the financial services sector and we continue to explore how our regulatory regime can accommodate new and innovative business models,” said the regulator, which oversees financial services conducted in or from the Dubai International Financial Centre (DIFC), a tax-free zone in Dubai, UAE.

Details of the DFSA’s plan are scant, but local outlet The National reported that the regulator will publish two consultation papers seeking feedback on its proposed rules in the first and second quarters of this year.

“We will look to regulate a wide range of digital assets, including security tokens, utility tokens, the various types of exchange (or payment) tokens, such as cryptocurrencies [and] the firms that provide relevant services in these markets,” Peter Smith, the head of strategy, policy and risk at the DFSA told The National. “We will regulate these markets in a proportionate and thoughtful manner, drawing on best practices across the globe.”

It should be noted that Ripple recently set up a regional base in Dubai, and the company’s CEO, Brad Garlinghouse, has previously shortlisted the UAE for its new headquarters, among other countries, if it leaves the U.S. amid regulatory scrutiny in the country. The U.S. Securities and Exchange Commission recently sued Ripple, Garlinghouse, and co-founder Chris Larsen for engaging in sales of unregistered securities, i.e., XRP. 

The UAE’s Abu Dhabi already has crypto rules in place. The Financial Services Regulatory Authority of Abu Dhabi Global Market published its crypto framework in 2018 and has granted in-principal approvals to several crypto firms since then, including BitOasis and Matrix Exchange.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Quick Take

• Both the extreme market selloff on March 13, 2020, and the lawsuit filing from the U.S. DOJ and CFTC on October 1, 2020, have had lasting negative impacts on BitMEX.
• BitMEX’s market share of monthly trade volume of Bitcoin futures has declined by 15.2% in 2020.
• BitMEX’s market share of monthly exchange website visits has declined by 8.6% in 2020.

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President-elect Joe Biden has officially named Gary Gensler as his pick for chairman of the U.S. Securities and Exchange Commission (SEC), confirming previous media reports.

Gensler was chairman of the U.S. Commodity Futures Trading Commission (CFTC) from 2009 to 2014, and since November, he has led Biden’s transition planning for financial industry oversight.

As the country’s top securities regulator, Gensler, a professor at the MIT Sloan School of Management, will oversee banks, brokers, public companies, as well as the crypto sector. Gensler would likely play a key role in considering a bitcoin exchange-traded fund, given revived efforts to launch one in the U.S. and institutional interest in such investment products.

Gensler, however, is no crypto enthusiast, as The Block’s Mike Orcutt wrote in November. But he is blockchain savvy, having served as a senior advisor at the MIT Media Lab’s Digital Currency Initiative. Gensler has also publicly commented on crypto projects, including the Facebook-backed Libra, now known as Diem.

Biden’s other pick, Rohit Chopra, for director of the Consumer Financial Protection Bureau, has also publicly commented on Libra in the past. Chopra currently serves as a commissioner of the Federal Trade Commission.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto asset manager CoinShares is launching a new physically-backed bitcoin exchange-traded product (ETP).

The product, dubbed CoinShares Physical Bitcoin (BITC), will list on Switzerland’s principal stock exchange SIX today. Each unit of BITC will be backed with 0.001 bitcoin.

ETPs are traded and settled like shares. They are passive investments that aim to mirror the performance of an underlying asset. Since CoinShares’ BITC product is physically-backed, it will directly hold the underlying asset to secure obligations.

The firm’s existing bitcoin products are synthetically structured. “It means they are not 100% physically backed,” CoinShares’ head of product Townsend Lansing told The Block. “They hold at least 75% of the exposure in physical bitcoin, and the remaining 25% can be used to get bitcoin futures or cash for liquidity purposes.” BITC, on the other hand, “will always be 100% physical,” said Lansing.

A physically-backed ETP minimizes credit risk, according to Lansing. While with a synthetic ETP, “there’s always some element of credit risk because you effectively have financial obligations.”

Indeed, CoinShares’ counterparty for existing bitcoin ETPs is GABI Trading, and hence it is exposed to credit risk. “Any circumstance under which GABI Trading does not have sufficient capital or is otherwise unable to repay the Issuer could have an adverse effect on the Issuer’s business and its financial position and subsequently its ability to repay its liabilities created by the Certificates,” CoinShares says on its website.

As for BITC, a CoinShares entity will directly hold physical bitcoins. That entity is Komainu — a joint venture between CoinShares, Ledger, and Nomura.

BITC will also have a lower expense ratio of 0.98% compared to CoinShares’ existing bitcoin ETPs that charge 2%. Lansing said charges of the existing products won’t be reduced now, given legal limitations. “When we first launched a bitcoin ETP, there was really the only way to do a bitcoin ETP, i.e., a synthetic structure. We would now run both sets of products simultaneously, and investors can choose what they want.”

Europe-based CoinShares currently manages about $3.5 billion worth of assets. Its U.S.-based rival Grayscale, on the other hand, has an AUM of more than $27 billion. When asked why bitcoin investment products are less popular in Europe, Lansing said, the U.S. is a much larger market anyway, “so you would see a U.S. product by definition be larger than its European equivalent.”

“I spent years doing commodity products and work for a company that had for the longest time the largest gold products, gold ETPs in the European market, and they were four or five times smaller than the equivalent U.S. products. So that is always something to realize,” said Lansing. “The U.S. is a single, unified financial market, one of the largest, if not the largest in the world in terms of sophistication and access.”

Nonetheless, crypto ETP providers in Europe are growing. Just last week, Germany-based ETC Group also listed a physically-backed bitcoin ETP on SIX. The stock exchange now provides a total of 35 crypto ETP products.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.