The Queen City of the West Crypto
By Bo Howell
Cincinnati, the queen city of the (mid)west is fast becoming the Midwest’s queen of crypto. Unfortunately, the city is coming of age during a time of regulatory uncertainty. As more local companies launch products related to cryptocurrencies, local entrepreneurs will need to engage with Washington regulators to ensure a happy ending.
In June 2021, Cincy Inno reported that crypto ATMs were popping up around Cincinnati; in fact, the number more than doubled to 113 in less than a year! The trend is driven by the number of people purchasing, mining, and investing in crypto and the availability of debt cards linked to digital wallets. At the time, Cassandra Gulia, Bitcoin Depot’s strategic marketing manager, noted that “[i]n the last year, a lot of people have been looking away from banking and the stock market and towards cryptocurrencies as a means of diversifying portfolios.” And that trend has only continued.
In July 2021, a group of Cincy investors launched their second crypto fund—Cincinnati Exchange Fund L.P. (The first fund, Cincinnati Crypto Fund, was launched in 2018; the fund reportedly raised $5 million.) According to the Cincinnati Business Courier, “[t]he fund takes investors cryptocurrency and stores it while exchanging it for a share of the partnership, much like an investment in a mutual fund.” The fund provides tax and diversification benefits to crypto holders. As noted in the article, crypto if fast becoming an asset class held by institutional and retail investors. The benefits are a lack of correlation with US equities and other markets. The risks are high volatility and lack of regulation.
But investors are not the only business adopting cryptocurrency. Cincy Inno has reported on Hyde Park retailers accepting crypto as payments and real estate start-ups trying to use the blockchain to resolve affordable housing issues. More recently, I helped IDX Advisors launch the first risk-managed bitcoin futures fund, and one of only a few bitcoin-related mutual funds in the country. After getting the Fund registered, I also published a blog post on key regulatory issue related to registered crypto funds.
The latest news announced the possible IPO of Griid Infrastructure, a Cincinnati-based bitcoin mining upstart. Griid and Adit EdTech Acquisition Corp. announced the possible launch of a “SPAC, or special purpose acquisition company” that could acquire Griid and take it public. The deal could value the company at more than $3 billion. Griid claims is to engage in carbon-neutral bitcoin coin mining, which is a resource intensive process.
In the past decade, we’ve seen crypto go from a decentralized form of payment known only to the nerdiest of computer geeks to one of the hottest investment products in mainstream America. It is the modern tulip craze. But as these forms of decentralized financial instruments improved their technology and produced spinoffs, new coin offerings, and more, their staying power increased.
As a result, regulators are starting to get involved in cryptocurrencies and other digital assets. On December 8, 2021, CEOs of various cryptocurrency-related companies appeared before Congress to argue educate representatives on this budding industry. Their goal: “tout what supporters believe to be the potential upsides of crypto and blockchain technology while playing down the risks highlighted by many policy makers and consumer-protection advocates.” Supporters argue that existing regulations don’t fit digital assets and trying to shove these square pegs into a round hole will cause innovators to move overseas. Opponents are concerned about fraud and threats to financial stability.
The path forward will require cooperation between innovators and regulators. A its annual “SEC Speaks” conference on October 12-13, 2021, Commissioner Caroline A. Crenshaw focused her remarks on the SEC’s regulation of digital assets, including cryptocurrencies. She directed her comments to developers saying that the path forward requires a meaningful exchange of ideas between innovators and regulators. Ms. Crenshaw suggested that a well-regulated digital market would increase investor trust and confidence and lead to heightened growth. She concluded her remarks by emphasizing the SEC’s authority to regulate these markets but noting that traditional rules and laws do not provide a sufficient framework. Rather, she noted the need to reconcile the existing regulatory regime with these rapidly evolving products.
In my next blog post, I will discuss how the SEC and CFTC are each seeking to gain regulatory authority over cryptocurrencies and their exchanges. In the meantime, feel free to follow me on Twitter at @Joot_Founder for more updates and useful information.
Further Reading
For more information on cryptocurrency, check out Strauss Troy’s earlier blogs on Cryptocurrency Part I: How Does it All Work, Cryptocurrency Part II: Getting Involved in the Crypto Market, Infrastructure Act Includes New Requirements for Reporting Cryptocurrency to the IRS, and Top 10 Issues to Consider When Registering a Digital Asset Fund.
For a more visual article, check out Joot’s Getting Up to Speed with Cryptocurrency (joot.io).
About the Author
Bo Howell is a Shareholder at Strauss Troy and founder of Joot, a digital compliance firm. As a securities lawyer and entrepreneur, Bo frequently writes and speaks about fintech, legal and regulatory matter related to investment adviser and investment companies, SEC compliance, artificial intelligence and machine learning, and software development.
About Strauss Troy
Strauss Troy is recognized by U.S. News – Best Lawyers® as among the Best Law Firms in 2022. Strauss Troy has earned 16 metropolitan rankings and was nationally ranked in Project Finance Law. The firm maintains offices in Cincinnati, OH and Covington, KY.