The US government shutdown has affected the crypto industry. Will Canaan Creative's IPO in the US also fail?

This article is from Coindesk, original author: Nikhilesh De, Zack Seward

Translator | Moni

Original link: https://www.coindesk.com/how-the-us-government-shutdown-is-halting-crypto-progress-on-wall-street

The United States is experiencing its longest "government shutdown" to date, which seems to have had a significant impact on the cryptocurrency industry.

As Congress and the White House failed to reach an agreement on funding for Donald Trump's border wall plan, the U.S. government officially partially shut down at 00:01 a.m. local time on December 22, 2018 (13:00 Beijing time on the 22nd). At first, Trump promised to let Mexicans pay for the border wall, but now he is asking American taxpayers to pay for it and insists that Congress pass a "US-Mexico wall construction budget" of up to $5 billion. In this regard, the Democrats and some Republicans are opposed, believing that the cost of building a wall is not enough to stop the influx of illegal immigrants. In addition, the two parties in the United States also have disputes over several other federal budget bills, which has led to the difficulty of the federal budget bill. If the budget bill is not passed, the government will close some agencies, temporarily stop providing "non-essential services", and relevant government employees will also stop paying their salaries to reduce expenses.

So far, the deadlock in Washington has lasted for four weeks, the longest government shutdown in U.S. history. Among various government departments, the work of the two major regulatory agencies closely related to the cryptocurrency industry, the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC), has also come to a standstill. Currently, if you want to legally launch cryptocurrency-related products and services in the U.S. market, you must obtain approval from these two major regulatory agencies.

Now it seems that the most "unlucky" one may be the Bitcoin futures trading platform Bakkt. The business of this crypto company created by Intercontinental Trading (parent company of the New York Stock Exchange) has now had to be postponed. One of the important reasons is that it could not obtain approval from regulators before December 22, 2018, which happened to be the first day of the US government shutdown. It is reported that Bakkt's business application is still in the "processing" state unless regulators open a 30-day public comment period, and due to the government shutdown, this public comment work has also been shelved. Previously, Bakkt claimed that if everything goes well, it will start business on January 24, but now they have not yet announced the specific time of business launch.

However, the US government shutdown did not stop Bakkt from building a trading platform. They recently announced the acquisition of a stake in the independent futures exchange Rosenthal Collins Group (RCG) to strengthen their regulatory compliance. Bakkt CEO Kelly Loeffler wrote in a media press release on New Year’s Eve:

“We made great progress last December and now we are ready to continue supporting our customers as soon as regulators give us the ‘green light’.”

Other startups seem to be in a similar situation - such as ErisX, a cryptocurrency trading platform that just received $27.5 million in funding. The platform aims to provide customers with a regulated futures trading platform and clearing services, so it must obtain approval from the U.S. Commodity Futures Trading Commission, and now they have to wait for federal employees to return to work. ErisX CEO Thomas Chippas said:

“ErisX has had a very positive and successful relationship with the CFTC. However, we are continuing to work on our platform development due to the U.S. government shutdown, and we look forward to resolving the impasse and hoping that the CFTC staff will review our application for a Derivatives Clearing Organization (DCO) product.”

What is the impact of the Bitcoin exchange-traded fund that people are most concerned about?

In addition to the anxiously awaited cryptocurrency exchanges, certain specific cryptocurrency products may also be affected by the U.S. government shutdown.

As the most watched Bitcoin exchange-traded fund (Bitcoin ETF) in the industry, the SEC has received rule change proposals from VanEck, SolidX and the Chicago Board Options Exchange (Cboe). In fact, the final review of these proposals has been postponed many times. According to the latest disclosure by the SEC, the approval deadline is February 27, 2019. It should be noted that according to Section 15 of the United States Code, any proposed rule change will be deemed to have been approved if the SEC does not issue an order approving or disapproving the rule change. In other words, according to current laws, if the SEC does not take any new measures before the deadline, these proposals will be "approved by default."

However, some legal experts said that even if the US government shuts down, it is unlikely that "default approval" will happen. Ethan Silver, president of brokerage business at the well-known law firm Lowenstein Sandler, expects that the US Securities and Exchange Commission will have staff on duty to continue working during the government shutdown, and under the current special circumstances, it is likely that all applications will be rejected "across the board." Ethan Silver added:

“I think if the SEC staff had to make a decision, they would most likely reject it outright rather than granting technical approval to a Bitcoin ETF. Not only that, the SEC would most likely use market integrity, emergency environment, etc. arguments to reject the application.”

Jake Chervinsky, an attorney at Kobre & Kim, said on Twitter that the U.S. Securities and Exchange Commission is likely to find some reason to reject all applications for Bitcoin exchange-traded funds during the government shutdown, and David Silver, an attorney at Silver Miller, agreed with this view.

So far, the SEC has not approved any cryptocurrency exchange-traded funds, and rejected more than a dozen applications for such funds in 2018 alone. But even in this situation, many crypto companies are still submitting applications one after another, trying to launch the first Bitcoin exchange-traded fund on the market. Just last week, Bitwise Asset Management announced its intention to cooperate with NYSE Arca to launch a Bitcoin exchange-traded fund. They have submitted an initial registration form to the SEC, but NYSE Arca has not yet submitted a rule change proposal, so their Bitcoin exchange-traded fund is not currently in the regulatory approval queue.

Will Canaan Creative's IPO in the US also fail?

Although the U.S. cryptocurrency market is relatively mature, the industry is still waiting for clearer official guidance to further understand how to safely handle digital assets.

Vince Molinari, co-founder of cryptocurrency exchange Templum, said the SEC’s previously planned regulatory guidance may also be delayed. Vince Molinari said:

“I think the entire crypto industry has been affected by the US government shutdown. It may take one to two quarters, or even longer, for the industry to get back on track, depending on when the shutdown ends. Even if the shutdown ends, government workers will first need to deal with the work they missed during the vacation.”

During the U.S. government shutdown, all companies' initial public offering (IPO) plans will be postponed.

Earlier, there were reports that cryptocurrency mining equipment manufacturer Canaan Creative was considering an initial public offering in the United States. Although the company revealed that the plan is still in its early stages, Vince Molinari believes that the US government shutdown may delay the approval of all IPOs "indefinitely."

Canaan Inc. applied for listing in Hong Kong in May 2018, planning to raise US$1 billion, but the listing failed in November 2018 due to doubts from the Hong Kong Stock Exchange and the Hong Kong Securities Regulatory Commission about its business model and development prospects. Subsequently, the company was rumored to be considering an IPO in the United States, but to make matters worse, the sudden shutdown of the US government seemed to disrupt Canaan Inc.'s IPO plan.

At this stage, can the crypto industry only rely on the U.S. Congress to get back on track?

With all work at U.S. financial regulators at a standstill, companies in the crypto industry are now looking to Congress as lawmakers in the House and Senate continue to work.

Kristin Smith, head of external affairs at the Blockchain Association, said:

“Over the past few months, we have been communicating with congressional lawmakers and regulators on the advantages of the token economy and have made some progress. But now, the US government shutdown has put all the conversations on hold. There is a lot of work ahead of us that needs further discussion, such as cryptocurrency taxation, regulatory guidance from the SEC, and regulatory guidance from the US Treasury. At present, these issues will be postponed, at least for the foreseeable future.”

At present, the official spokesperson of the SEC seems to have set up an automatic reply to his emails, saying:

"Because the U.S. federal government has not allocated funds as expected, the U.S. Securities and Exchange Commission is currently closed and we are not in the office at the moment. Once the funding is approved, we will return to work. During the closure of the agency, emails will not be viewed or responded to. Thank you."