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Federal Register / Vol. 86, No. 160 / Monday, August 23, 2021 / Notices
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of 2021 and the digital assets financial ecosystem, including bitcoin, has progressed significantly. The development of a regulated market for digital asset securities has significantly evolved, with market participants having conducted registered public offerings of both digital asset securities 14 and shares in investment vehicles holding bitcoin futures.15
Additionally, licensed and regulated service providers have emerged to provide fund custodial services for digital assets, among other services. For example, in December 2020, the Commission adopted a conditional noaction position permitting certain special purpose broker-dealers to custody digital asset securities under Rule 15c33 under the Exchange Act; 16
in September 2020, the Staff of the Commission released a no-action letter permitting certain broker-dealers to operate a non-custodial Alternative Trading System ATS for digital asset securities, subject to specified conditions; 17 and in October 2019, the Staff of the Commission granted temporary relief from the clearing agency registration requirement to an entity seeking to establish a securities clearance and settlement system based on distributed ledger technology,18 and multiple transfer agents who provide President & CEO, Investment Company Institute and Timothy W. Cameron, Asset Management GroupHead, Securities Industry and Financial Markets Association January 18, 2018, available at https www.sec.gov/divisions/investment/
noaction/2018/cryptocurrency-011818.htm.
14 See Prospectus supplement filed pursuant to Rule 424b1 for INX Tokens Registration No.
333233363, available at: https www.sec.gov/
Archives/edgar/data/1725882/
000121390020023202/ea125858-424b1_
inxlimited.htm.
15 See Prospectus filed by Stone Ridge Trust VI
on behalf of NYDIG Bitcoin Strategy Fund Registration, available at: https www.sec.gov/
Archives/edgar/data/1764894/
000119312519309942/d693146d497.htm.
16 See Securities Exchange Act Release No. 90788, 86 FR 11627 February 26, 2021 File Number S7
2520 Custody of Digital Asset Securities by Special Purpose Broker-Dealers.
17 See letter from Elizabeth Baird, Deputy Director, Division of Trading and Markets, U.S.
Securities and Exchange Commission to Kris Dailey, Vice President, Risk Oversight &
Operational Regulation, Financial Industry Regulatory Authority September 25, 2020, available at: https www.sec.gov/divisions/
marketreg/mr-noaction/2020/finra-ats-role-insettlement-of-digital-asset-security-trades09252020.pdf.
18 See letter from Jeffrey S. Mooney, Associate Director, Division of Trading and Markets, U.S.
Securities and Exchange Commission to Charles G.
Cascarilla & Daniel M. Burstein, Paxos Trust Company, LLC October 28, 2019, available at:
https www.sec.gov/divisions/marketreg/mrnoaction/2019/paxos-trust-company-10281917a.pdf.

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services for digital asset securities registered with the Commission.19
Outside the Commissions purview, the regulatory landscape has changed significantly since 2016, and cryptocurrency markets have grown and evolved as well. The market for bitcoin is approximately 100 times larger, having recently reached a market cap of over $1 trillion, although as of July 19, 2021, it is closer to $580 billion. CFTC
regulated bitcoin futures represented approximately $28 billion in notional trading volume on Chicago Mercantile Exchange CME Bitcoin Futures in December 2020 compared to $737
million, $1.4 billion, and $3.9 billion in total trading in December 2017, December 2018, and December 2019, respectively. Bitcoin Futures traded over $1.2 billion per day in December 2020 and represented $1.6 billion in open interest compared to $115 million in December 2019, which the Exchange believes represents a regulated market of significant size, as further discussed below.20 The CFTC has exercised its regulatory jurisdiction in bringing a number of enforcement actions related to bitcoin and against trading platforms that offer cryptocurrency trading.21 The U.S. Office of the Comptroller of the Currency the OCC has made clear that federally-chartered banks are able to provide custody services for cryptocurrencies and other digital assets.22 The OCC recently granted conditional approval of two charter conversions by state-chartered trust companies to national banks, both of which provide cryptocurrency custody services.23 NYDFS has granted no fewer 19 See, e.g., Form TA1/A filed by Tokensoft Transfer Agent LLC CIK: 0001794142 on January 8, 2021, available at: https www.sec.gov/Archives/
edgar/data/1794142/000179414219000001/
xslFTA1X01/primary_doc.xml.
20 All statistics and charts included in this proposal are sourced from https
www.cmegroup.com/trading/bitcoin-futures.html.
21 The CFTCs annual report for Fiscal Year 2020
which ended on September 30, 2020 noted that the CFTC continued to aggressively prosecute misconduct involving digital assets that fit within the CEAs definition of commodity and brought a record setting seven cases involving digital assets. See CFTC FY2020 Division of Enforcement Annual Report, available at: https www.cftc.gov/
media/5321/DOE_FY2020_AnnualReport_120120/
download. Additionally, the CFTC filed on October 1, 2020, a civil enforcement action against the owner/operators of the BitMEX trading platform, which was one of the largest bitcoin derivative exchanges. See CFTC Release No. 827020 October 1, 2020 available at: https www.cftc.gov/
PressRoom/PressReleases/8270-20.
22 See OCC News Release 20212 January 4, 2021 available at: https www.occ.gov/newsissuances/news-releases/2021/nr-occ-2021-2.html.
23 See OCC News Release 20216 January 13, 2021 available at: https www.occ.gov/newsissuances/news-releases/2021/nr-occ-2021-6.html and OCC News Release 202119 February 5, 2021

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than twenty-five BitLicenses, including to established public payment companies like PayPal Holdings, Inc.
and Square, Inc., and limited purpose trust charters to entities providing cryptocurrency custody services, including the Trusts Custodian. The U.S. Treasury Financial Crimes Enforcement Network FinCEN has released extensive guidance regarding the applicability of the Bank Secrecy Act BSA and implementing regulations to virtual currency businesses,24 and has proposed rules imposing requirements on entities subject to the BSA that are specific to the technological context of virtual currencies.25 In addition, the Treasurys Office of Foreign Assets Control OFAC has brought enforcement actions over apparent violations of the sanctions laws in connection with the provision of wallet management services for digital assets.26
In addition to the regulatory developments laid out above, more traditional financial market participants appear to be embracing cryptocurrency:
large insurance companies,27 asset managers,28 university endowments,29
available at: https www.occ.gov/news-issuances/
news-releases/2021/nr-occ-2021-19.html.
24 See FinCEN Guidance FIN2019G001 May 9, 2019 Application of FinCENs Regulations to Certain Business Models Involving Convertible Virtual Currencies available at: https
www.fincen.gov/sites/default/files/2019-05/FinCEN
%20Guidance%20CVC%20FINAL%20508.pdf.
25 See U.S. Department of the Treasury Press Release: The Financial Crimes Enforcement Network Proposes Rule Aimed at Closing AntiMoney Laundering Regulatory Gaps for Certain Convertible Virtual Currency and Digital Asset Transactions December 18, 2020, available at:
https home.treasury.gov/news/press-releases/
sm1216.
26 See U.S. Department of the Treasury Enforcement Release: OFAC Enters Into $98,830
Settlement with BitGo, Inc. for Apparent Violations of Multiple Sanctions Programs Related to Digital Currency Transactions December 30, 2020
available at: https home.treasury.gov/system/files/
126/20201230_bitgo.pdf.
27 On December 10, 2020, Massachusetts Mutual Life Insurance Company MassMutual announced that it had purchased $100 million in bitcoin for its general investment account. See MassMutual Press Release Institutional Bitcoin provider NYDIG
announces minority stake purchase by MassMutual December 10, 2020 available at:
https www.massmutual.com/about-us/news-andpress-releases/press-releases/2020/12/institutionalbitcoin-provider-nydig-announces-minority-stakepurchase-by-massmutual.
28 See e.g., BlackRocks Rick Rieder says the worlds largest asset manager has started to dabble in bitcoin February 17, 2021 available at: https
www.cnbc.com/2021/02/17/blackrock-has-startedto-dabble-in-bitcoin-says-rick-rieder.html and Guggenheims Scott Minerd Says Bitcoin Should Be Worth $400,000 December 16, 2020 available at: https www.bloomberg.com/news/articles/202012-16/guggenheim-s-scott-minerd-says-bitcoinshould-be-worth-400-000.
29 See e.g., Harvard and Yale Endowments Among Those Reportedly Buying Crypto January
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