TD Cowen: US Shutdown Halts SEC Work on Crypto Regulations

TLDR

• The US government shutdown halts SEC work, delaying crypto regulations.
• Bitcoin and altcoin growth is stunted as SEC pauses policy changes.
• TD Cowen predicts longer delays in crypto policy once government resumes.
• The Federal Reserve and FDIC may play a larger role in crypto policy.

The ongoing US government shutdown has raised concerns for the cryptocurrency market, according to investment bank TD Cowen. The firm warned that the shutdown, which resulted from Congress’s failure to reach a funding agreement, has brought regulatory progress in the crypto sector to a halt. With federal agencies like the Securities and Exchange Commission (SEC) being significantly impacted, the shutdown could have long-lasting effects on Bitcoin and altcoins.

As the government shutdown continues, the SEC has suspended its work on important policy changes affecting the crypto industry. These developments include the approval of new digital asset products, tokenized equities, and cryptocurrency exchange-traded funds (ETFs), all of which have seen significant delays. TD Cowen’s Washington Research Group, led by Jaret Seiberg, noted that unless an agreement is reached to end the shutdown, these crucial initiatives are unlikely to proceed in the short term.

SEC Work on Crypto Policy at a Standstill

The SEC has been heavily involved in crafting regulations that could impact the future of cryptocurrencies. These regulations include exemptions for new crypto products and digital assets offering tokenized stocks, which could open the door for more institutional adoption of cryptocurrencies. However, with the SEC’s operations largely suspended, progress on these issues has completely stalled.

Jaret Seiberg from TD Cowen emphasized that the shutdown is not just delaying the work that was in progress but will also create a backlog of tasks once government operations resume.

The closure has led to the SEC operating with only a small fraction of its staff, limiting its ability to address urgent crypto-related matters or approve pending applications, including ETF requests that could have a large impact on Bitcoin and altcoin prices.

Crypto ETFs and the Delay in Approvals

One of the most significant effects of the government shutdown has been the halt in the approval process for crypto ETFs. Several crypto ETFs were on the brink of receiving approval from the SEC, and market watchers were anticipating significant moves in the market.

The delay in approval means that these potential products cannot enter the market, which could affect institutional investment in Bitcoin and altcoins.

Seiberg pointed out that the SEC’s limited operations could leave the approval process in limbo for weeks, if not longer. As a result, crypto markets may see stunted growth in the near future, as many investors are waiting for clearer regulatory frameworks to move forward with large-scale investments in the space.

Federal Reserve and Other Agencies Step In

While the SEC’s work on crypto regulation has stalled, other institutions like the Federal Reserve, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) are still operational. These institutions have the authority to influence crypto policies, especially regarding stablecoins, crypto asset custodianship, and tokenization-based payment systems.

Seiberg from TD Cowen suggested that these institutions could fill the regulatory gap left by the SEC. “We will closely monitor the steps these institutions will take regarding the authorization of banks to issue stablecoins, the storage of crypto assets, and the development of tokenization-based payment systems,” he said.

While the SEC remains the primary regulatory body for many aspects of the crypto industry, the increasing role of these other agencies could shape the future of the sector in unexpected ways.

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