SEC and CFTC Issue Exemptions to Advance Tokenized Stock Trading
A solo presenter on the Digital Asset News channel covers the SEC's innovation exemption for tokenized securities and a parallel CFTC no-action position, alongside a market update and personal investment strategy discussion.
Summary
The host, Rob, covers two major regulatory developments: the SEC issuing a temporary innovation exemption allowing tokenized stock trading on-chain, and the CFTC issuing a no-action position protecting passive software providers such as MetaMask and Uniswap from being classified as exchanges. Rob argues both moves effectively fill the gap left by Congress's failure to pass the Clarity Act. He also reviews Bitcoin's current position relative to historical four-year cycle patterns, noting that the market is behaving differently from prior cycles — sitting only 36% below its all-time high rather than the 70–80% drawdowns seen in previous bear markets. He closes with a discussion of his personal exit strategy, referencing risk indicators from several analysts he follows.
Key Takeaways
FULL TRANSCRIPT
Market Overview and Weekly Recap
Rob: It is another great day to be in the crypto and digital asset space, as we are absolutely ripping. We're seeing not only Bitcoin starting to go into the stratosphere, but also altcoins — which is something we should not overlook.
This week was tumultuous. It was one of those make-or-break weeks and I thought we would see some volatility, and we definitely did. On Tuesday the Clarity Act was shot down — not a surprise. I think we all knew that was not going to go through. And then Kevin Walsh came out and raised rates, which was a 90%-plus expected outcome, and that came to fruition. Because of that, we saw the price actually increase. Things were looking pretty good.
There are also a lot of things going on globally that everybody's concerned about, which don't seem to be a big deal in the end. First of all, the Bank of Japan raised their interest rates to a 31-year high because they are concerned about inflation. I find this somewhat amusing, because the Bank of Japan said the move was due to a risk that inflation will deviate upward beyond its 2% target. Right now, Japan's inflation rate is roughly 1.91 to 1.93% — correct me in the comments. Those are rookie numbers. If you want to deal with inflation, come over here and take a look at the gas pump, specifically diesel here in America. We are getting hit hard, and of course rates are going up across the board.
So what does this mean for digital assets, Bitcoin, and crypto? Everything's going up. People are quite happy. Things look like they're in stride. And it always goes with the thesis — you feel like a genius when things go your way. But let's not get ahead of ourselves. I think we've all done a pretty good job in this bear market. If you're here right now, you're one of the few that were buying in the bear. This is where all the money is made. That's what we talk about here on the channel.
Four-Year Cycle Analysis
Over the last 24 hours it's quite up and to the right. But let's look at the bigger picture. You can find the four-year cycle tracker on Dan Takahashi's Crypto — go into tools, click on four-year cycle, and there you are. Over four years, it's not just all-time highs, but take a look at the lows of the cycle.
Going back to 2015, we dropped 82% from the all-time high, which was in 2013. Then on January 14, 2019, we were 81% down from the 2017 all-time high. Roughly the same — 82%, 81%. Moving forward, December 4th, 2018 was when we saw roughly the low at $4,000, a drop of 79%. And four years later, December 4th, 2022, it was 75% down. Not quite as much as the 80s, but roughly in the same range.
Now, as of today — September 18th — we are only 36% from the all-time high, as opposed to 70% back in the equivalent point in 2021. If we extrapolate and try to repeat the four-year cycle pattern, we should be around $36,632 from our all-time high. But instead we're sitting around $80,000 today. Things are a little different this cycle. Usually in this time frame we are on a long trajectory down, and that is not the case right now.
SEC Innovation Exemption for Tokenized Securities
Now, the SEC issued what they're calling the innovation exemption to facilitate the trading of tokenized stocks. This has been the big story today and everybody's talking about it.
The SEC issued an order granting temporary conditional exemptive relief to tokenized securities venues — or TSVs — from the definition of exchange, and to trade tokenized national market system stock, or NMS stock, using innovative permissioned automated market maker liquidity pools. Let's just let the chair of the SEC explain it in real terms.
SEC Chair: "Earlier this week, Congress was unable to advance the Clarity Act despite good-faith negotiations and the tireless efforts of many. So today, we are taking a significant step using the SEC's statutory authority to ensure that progress continues and that America's capital markets advance into the digital age — through what we call the innovation exemption, a mechanism to facilitate on-chain trading of certain tokenized stocks.
On-chain trading of tokenized securities could provide vast benefits to investors and markets. But under the current framework, venues that wish to utilize this innovative technology may encounter ambiguity surrounding regulatory status and how they could comply with the federal securities laws. For too long, this uncertainty has prevented responsible yet critical innovation from taking root in the United States.
Today's SEC order grants two forms of temporary conditional exemptive relief. First, exempting certain trading venues from the definition of exchange under Section 3(a)(1) of the Exchange Act. And second, exempting certain liquidity providers from the definition of dealer under Section 3(a)(5) of the Exchange Act — informed by extensive public engagement through roundtables and other input.
Our innovation exemption is intentionally limited in scope and set to expire after five years. These limitations reflect the purpose of the order: to provide a defined window in which the market may develop while the commission evaluates future rulemaking. We are not cementing today's technology as the standard for tomorrow.
This exemption is a principled, structured grant of relief designed to resolve genuine legal uncertainty that has driven innovation away from the United States, while providing investor protections and upholding market integrity standards. Importantly, eligibility for the exemption is contingent upon, among other factors, that the venue be a US person, that participants must have been cleared to trade tokenized NMS stock, that no synthetic instruments be allowed, that issuers of the underlying stock be notified and have the opportunity to opt out, and that tokenized stock must provide holders with the same rights and privileges as those stocks you may purchase on your brokerage account today.
This interim measure must be followed by durable rulemaking to ensure that investors are protected and on-chain markets remain a viable pathway as our capital markets continue to evolve. Through today's action and a number of ongoing initiatives, we will ensure that America remains the world's premier destination to build the next generation of financial infrastructure."
Rob: Well, let's hope so. That is a great move forward, given that Congress couldn't get it done. Congratulations to the SEC.
There are some interesting pieces there. He said this will be in effect for five years. However, my understanding — and correct me in the comments — is that when the agency moves into the next administration, the new administration can put in their own people, and a lot of chairs will step down out of courtesy. Some will, some won't. But it doesn't matter because we have this for two more years under the current administration, and I think that's a good thing.
Another interesting point is that companies can opt out. Apple, for example, could say, "We don't want anything to do with tokenized securities. We don't want people trading our stock in a way that gives them all the rights of a usual stockholder." They can do that. I don't think most companies would, but that is exactly what he's saying.
And lastly, he said the rights and responsibilities of stockholders should be consistent across the board. Meaning if you buy tokenized stock, you should have the right to vote and have your voice heard because you own a part of that company. This was an issue that came up with an early situation involving one of the big AI companies — where if you bought tokenized stock through another type of venue, you had no rights to vote or have a voice as a shareholder. What the SEC chair is saying here is that if a company doesn't opt out, they must give all tokenized stockholders the same rights as regular stockholders from a traditional broker-dealer. I think this is a step in the right direction.
Why the SEC Move Matters — James (Metal Law Man)
James, who goes by Metal Law Man on X, has been in this space for ten years as a lawyer advising the securities industry. He put it well. He said: when he started as a lawyer advising the securities industry, the operating standard for stock trading was T+5 — it took five days for stock trades to settle. Security settlement has gone from five days to pretty much instant, and the cost to trade has gone from roughly 1% of the trade to essentially zero.
That's interesting to me. When you go from 1%, that's great for the trader doing the trading, but it was a great business model for the companies providing the service. When you go to instantaneous settlement and revenue is almost nothing, is that what we really want to see? Of course, as someone buying stocks, you don't want to pay 1%. But as a business model, I wonder if this could eventually lead to some negative consequences. Then again, as time goes on, things become cheaper and cheaper — we saw the same thing happen with the internet. So maybe I'm overthinking it.
James also said: tokenized trading and blockchain-based settlement are here to stay. The securities industry will never be the same. NASDAQ, the New York Stock Exchange — they better catch up. They will have to adapt rapidly or they will die, as will the brokers who were the traditional interface between investors and stock trading venues. Well said.
CFTC No-Action Position for Passive Software Providers
It's not just the SEC. The CFTC came out and made a significant move as well. The CFTC's Market Participants Division announced it issued a no-action position for the benefit of providers of passive software — and what is passive software? That is your MetaMask, that is your Uniswap, that is your Phantom Wallet.
What the former CFTC was trying to do was classify these as pass-throughs and signify them as exchanges, requiring them to register as exchanges and deal with all the regulatory headaches that come with that — even though they simply put the software out. That is a hindrance to technology and it did not allow us to move forward. Now the CFTC is saying they can't wait for Congress and is putting this out. Same as the SEC — it'll be in effect until the next administration. So we've got two years. Enjoy it. These are good things.
Altcoin Market Check
Let me refresh and take a look at what's going on with altcoins, since we've been doing a lot of heavy talking about Bitcoin.
Solana is up 10%. Hyperliquid is up 10%. Monero up 8%. Chainlink up 7%. Cardano is up 8.8% — hallelujah. Uniswap is up 132% in 30 days — congratulations to Uniswap holders. That one is probably playing into what the CFTC just announced. Pretty good news for Uniswap. Near Protocol is up 23% in one day and up 120% in 30 days.
Let's take a look at Near over different timeframes. One month — very nice. Three months — now we're talking. One year — it was roughly $3.20 in September. And the maximum — well, Near at one point was $20. Let's not focus on that. Let's focus on dollar cost averaging. Every day that it's well below its all-time high, you're lowering your cost basis. And if you dollar cost averaged Bitcoin at $60,000 and it felt like you were throwing sand in the ocean, you're probably in profit even if you bought near the top. Something to consider.
Near has a lot of connections into the AI industry, so maybe it'll be the next big thing. We'll find out.
On Zcash — it seems like there's some internal voting going on for the project itself, but fundamentally there's no reason why it should be going that high unless there are some big backers behind it moving things around. It doesn't make much sense to me, but I'm sure people who bought Zcash will tell me how wrong I am.
On tokenized stocks — yes, there's one backed by BlackRock. Also, there's a big move with the DTCC and with Canton, which is going to come up around the first week of October and is big into tokenized stocks. Something to look at.
As for anything past the top 50 — most of them haven't proven themselves. We have way too many projects out there that just don't need to be there. Couldn't we just get down from 10,000 cryptos and go with the top 10, flow the money into those, and hopefully they're ones we all picked? That'd be nice.
Personal Exit Strategy and Risk Indicators
On the question of when to stop dollar cost averaging Bitcoin — since none of the indicators saved me at the last all-time high, I have to combine several things. The bottoms are a little easier to call than the tops, in my view. I thought Q4 would be an awful time, but maybe it's not going to work out that way. So I've been hedging my bet and buying every Monday for the last six months.
There are three things I'm going to look at, and three people I trust. First is Ben Cowen — Into the Cryptoverse. I'm going to watch his risk levels. Once they go above 0.6, I'm going to stop dollar cost averaging. Right now the risk level is at 0.47. Around above 0.6 and $110,000, I'm not buying Bitcoin. People will say it'll keep going — just hang on. Well, I like to rotate. As Matt Crosby told me: I don't sell my Bitcoin, I rotate into cash, which I then sit on for a bit and rotate into potentially other assets, or I just stick into cash and rotate back into Bitcoin. I'm not selling, I'm rotating. That makes a lot of sense to me.
I also follow Ivan's Bull Mania. He called it one week ago. He started off bullish at $22,000, didn't hit the bottom — not a big deal — then said around $106,000 he was turning bearish. Not bad. And then there's Wes's Smart Money indicator, which called a sell signal around $116,000. Pretty close.
I'm going to use those three signals and get out at that point. I think we'll top out somewhere around $170,000. We'll see. And that's just Bitcoin — altcoins are a little different story.