Regulatory

AI Legislative Efforts Highlight Proactive Regulatory Approach, while Digital Asset Institutions Take Two Steps Forward

BitOoda Regulatory Analysis, 6/21/23

Tom Nath

Key Takeaway #1

US lawmakers are proactively proposing a number of bills to start developing a foundational regulatory regime for AI.

Key Takeaway #2

This contrasts with the country’s approach to digital asset governance, which continues to be led by the regulatory agencies.

Key Takeaway #3

BlackRock’s ETF proposal (involving collaboration with BNY Mellon, Coinbase and Nasdaq) and the launch of EDX Markets (backed by Citadel Securities, Fidelity and Charles Schwab) have the potential to turn the tide of the US crypto market landscape and overcome regulatory headwinds given the size and legitimacy of these financial institutions.

Key Takeaway #4

A flurry of legislative activity this week saw the introduction of a number of proposals intended to establish a foundational regulatory approach to AI. Along with the President’s meeting with AI experts on Tuesday and the Blueprint published last year, it is clear that the US is keenly focused on getting out in front of AI governance early in its evolution.

Senator Schumer introduced a framework for regulating the development of AI.
A bipartisan group of Representatives is calling for the creation of a national commission to look at “how the U.S. can maintain leadership while setting up guardrails to prevent harms, examine which federal agencies oversee aspects of AI and study efforts to regulate it elsewhere in the world.”
A group of Senators is proposing to create an AI Task Force to conduct a comprehensive review of US AI-related policies.

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A flurry of legislative activity this week saw the introduction of a number of proposals intended to establish a foundational regulatory approach to AI. Along with the President’s meeting with AI experts on Tuesday and the Blueprint published last year, it is clear that the US is keenly focused on getting out in front of AI governance early in its evolution.

Senator Schumer introduced a framework for regulating the development of AI.

A bipartisan group of Representatives is calling for the creation of a national commission to look at “how the U.S. can maintain leadership while setting up guardrails to prevent harms, examine which federal agencies oversee aspects of AI and study efforts to regulate it elsewhere in the world.”

A group of Senators is proposing to create an AI Task Force to conduct a comprehensive review of US AI-related policies.

These efforts mirror activity on the other side of the Atlantic, where the EU has already drafted and proposed The AI Act with a risk-based approach to AI.

We applaud this proactive approach to jumpstart the development of a clear and comprehensive regulatory regime for AI in the US. That said, we cannot help but contrast the proactive approach lawmakers are taking on AI with the reactive and slower-moving digital asset regulatory efforts.

Rather than being legislatively-led, crypto regulation is being driven at the agency level, primarily by the SEC and to a lesser degree the CFTC, resulting in a largely regulation-by-enforcement approach that has accelerated the industry’s exodus to overseas markets.

However, in the wake of the SEC’s Coinbase and Binance enforcement actions, this week, a group of the most established financial institutions took actions to advance the US market in a regulated, compliant manner:

BlackRock submitted an application to the SEC for approval to launch a spot bitcoin ETF, notably including proposed partnerships with BNY Mellon and Coinbase for custodial services, and Nasdaq to monitor for market manipulation. The caliber of these financial giants sets this proposal apart from past ETF attempts, and represents the type of sophisticated institutional effort needed to overcome the perception among lawmakers and regulators that the digital asset industry lacks mature participants.

EDX Markets, a new exchange backed by Citadel Securities, Fidelity Investments, and Charles Schwab, launched operations. “EDX says its approach draws on standard practices in traditional, regulated financial markets and differs in key ways from how crypto exchanges typically operate.” The platform avoids the commingling of client funds, uses professional brokers, and is starting conservatively with its cryptocurrency offerings. All we have to say is… IT’S ABOUT TIME.

We are cautiously optimistic that the legitimacy of these actors could crack the code and improve the legislative and regulatory environment surrounding the digital asset industry.

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Analyst Certification

Tom Nath, the author of this report, hereby certifies that all of the views expressed in this report accurately reflect his personal views, which have not been influenced by considerations of the firm’s business or client relationships.

Conflicts of Interest

This research contains the views, opinions, and recommendations of BitOoda. This report is intended for research and educational purposes only. We are not compensated in any way based upon any specific view or recommendation.

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