The securities have not been and will not be registered under the U.S. Securities Act of 1933, as amended or with any other regulatory authority of any State or other jurisdiction of the United States or Canada and (i) may not be offered, sold or delivered within the United States or Canada, or to, or for the account or benefit of any U.S. Person or Canadian, and (ii) may be offered, sold or otherwise delivered at any time only to transferees that are Non-United States Persons and Non-Canadians.

September 5, 2023

JP Morgan; LSE Group; Are crypto commodities in the US?

Welcome to Swarm Markets’ media memo. This weekly update provides comments from Swarm Markets’ co-founders, Philipp Pieper and Timo Lehes, on key industry news that has caught our eye, plus our own developments.

Comments available on the following news items:

  • US court labels bitcoin and ether as crypto commodities
  • LSE Group to launch tokenized assets
  • JPMorgan sees bitcoin spot ETF approval as inevitable


JPMorgan sees SEC out of options on bitcoin spot ETF approval


The SEC continues to play for time on the potential bitcoin spot ETF market, but comments from JPMorgan suggest it is running out of ways to delay the inevitable. The approval of bitcoin spot ETFs is going to have a big impact on both TradFi and crypto markets. While crypto will respond positively when approval materializes it will also have consequences for players in the market. 


Pricing is going to be a huge driver of activity so we’re likely to see a price war at the outset. This will drive fees down, as has always been typical in the ETF space, and will benefit the biggest providers such as Fidelity and BlackRock. Smaller players such as Grayscale and Gemini are going to find it hard to compete on price and could see their revenues plunge on the back of the approval. 


The opening of the market will also drive large volumes of institutional capital straight toward bitcoin and ethereum ETFs and could have massive market moving consequences. Some of the anticipation of this is perhaps already priced in but the market seems poised to surge once that approval turning point arrives and has much potential to move further beyond that too as more capital flows in. 


The move by TradFi institutions into bitcoin also reaffirms evidence of a key emerging trend for further integration between the old financial world and the new. It isn’t just capital flowing into cryptoassets but TradFi adoption of DeFi tools and products and making those products available on chain. 


The introduction of deep, experienced TradFi institutions into such markets is going to create whole new markets of advanced structured products that move well beyond just bitcoin and ethereum. This will be self-fulfilling too as more capital is drawn on chain to gain access to those innovative products. In essence – it is going to create a snowball effect for the sector. 


LSE Group to launch a digital asset exchange 


Major stock market provider LSE Group has announced it is planning to launch a digital asset exchange in the UK. The move could be a huge step for the digital assets market and offers some insight into the thinking of the UK as it competes to provide the most welcoming environment for the fast-growing sector.


LSE for its part has made clear this is not a play into the crypto market. Instead it will look to offer traditional real world assets (RWAs) via blockchain technology, akin to what Swarm already provides. LSE’s reasoning chimes with our own in providing investors with more transparent, streamlined and secure asset transactions and digitally-verifiable ownership. 


The tokenization of RWAs is a potentially vast growth market, one which LSE – which has struggled in recent years thanks to a slowing IPO market – is keen not to miss out on. LSE has, for now, particularly emphasized the potential benefit in private markets which are particularly opaque.


RWA tokenization will be transformational for global financial infrastructure and will enhance ownership, transaction efficiency, cost, and transparency. It is interesting to see the UK Government appears ready to embrace the technology too. With such a  large market share up for grabs it appears happy to let LSE make a play into the space. 


US court declares ether and bitcoin a commodity


A fresh court ruling around a class action suit from Polygon users has fuelled the debate over the status of cryptoassets under the law in the US. 


The SEC has worked hard to have cryptoassets classified in court as securities. The clue is in the name because if legally speaking they are securities – then the SEC has the remit to pursue and regulate them. 


But the recent Polygon ruling is a blow to this thesis – the judge ruled ether and bitcoin were in fact “crypto commodities”. The SEC naturally says it will appeal this, and it is by no means a definitive result, but it is certainly positive for crypto, particularly in the face of a heavy-handed regulator. 


The ruling has clear implications for the outstanding cases against both Binance and Coinbase – two of the biggest crypto platforms in the world. The SEC is suing both for selling unregistered securities. But if the Polygon ruling holds true then both could be chucked out by courts in due course. Whether the SEC doubles down or backs off remains to be seen. 


This would of course be mitigated by clear legislation and a regulatory framework which makes clear the standing of cryptoassets in the US, whose legislature is well behind on determining a pathway for the crypto community. Until such rules are forthcoming it will continue to be decided through the courts which will keep the market on an uncertain footing.