🟪 Take note, crypto

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This week, Byron is enjoying the holidays and taking a break from newsletterland. Please enjoy this takeover edition from the Forward Guidance newsletter, written by Casey Wagner, Ben Strack and Felix Jauvin.

As we approach what will undoubtedly be a new era for federal crypto regulation, this state watchdog head has some advice for companies: Start engaging now. 

"Never surprise your regulator," New York Department of Financial Services Superintendent Adrienne Harris said at the Blockchain Association Policy Summit earlier this month. 

"We are by nature risk-adverse people," she added. "We don’t like to be surprised, so come in and talk to us proactively." 

Waiting until there is already an enforcement action underway to meet with regulators is a mistake, Harris said. Companies should be having these conversations before they even file applications, she added. 

The comments come as New York continues to be a leader in state-level regulation. It was the first state to design a "BitLicense" program in 2014. The policy, which requires businesses conducting digital asset activities to register with the DFS, came into effect the following year. 

"Foreign jurisdictions and Congress have been for the last several years really borrowing from the New York framework as now it's the gold standard," Harris said. 

New York’s BitLicense may have been received poorly by the industry at first (at least 10 companies initially left the state when the regulations were announced), but the regulatory framework shows the DFS is committed to allowing investors to access the markets they want, Harris said. 

"It's not our job as a regulator to decide what the market wants or doesn't want, right? These instruments are here," she added. "This technology is here. It's our job to protect consumers, protect markets and ensure responsible growth in the industry." 

While President-elect Donald Trump has not commented on whether he would grant more authority to states to oversee the crypto industry, his administration’s efforts to shrink the size of several federal agencies, including the SEC, could ultimately have that effect.

— Casey Wagner

US spot ether products turned five months old yesterday. 

But consistent (and substantial) net inflows only started coming after the election. First, a look at the flows by month: 

To summarize: A flood of net money exited Grayscale’s higher-priced Ethereum Trust (ETHE) in the first few days after it converted to an ETF. The other funds’ inflows could not fully offset those. 

Then there were three months of rather flat flows. Industry watchers attributed this in part to the need for more education about ETH — an asset with a value prop more difficult to grasp than BTC.

Donald Trump’s election win spurred crypto market euphoria. While bitcoin has hit several new all-time high price levels, ETH hasn’t. 

CoinShares research associate Luke Nolan previously told me he’s eyeing February or March for ETH to hit a new high — as long as ether ETF flows remain strong. 

BTC has gained more institutional attention than ETH because of its easier-to-understand digital gold narrative ($36 billion of net inflows for bitcoin ETFs vs. $2.3 billion for ETH products). 

Then there’s the fact that ETH also faces competition from other layer-1s like solana, Nolan added. Several fund groups have proposed ETFs that would hold SOL.  

"Ethereum developers have taken a long-term view as to improving the protocol whilst Solana has very much focused on capturing attention and demand now," Nolan said. "They are both valid approaches that each attend to their own use cases and niches."

Keeping an eye on crypto ETF flows will help us understand investor sentiment toward each asset — whether it be BTC, ETH or others that could soon make their way into an ETF wrapper.

— Ben Strack

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