Legal Expert Dr Zvi Gabbay


The Securities and Exchange Commission (SEC) has been reluctant on approving a spot Bitcoin exchange-traded fund (ETF), but according to Dr Zvi Gabbay, a partner and the head of the Capital Markets Department at the Barnea & Co. law firm, giants like BlackRock must have “right advisors” to guide them with their spot Bitcoin ETF application.

In the second part of our discussion with Dr Gabbay, an expert in financial regulation and enforcement, we learn about differing crypto approaches in the EU, whether crypto firms are still willing to do business in the US, the need for bridges between the crypto industry and traditional finance, also touching on political influence and the likelihood of approval for spot Bitcoin ETFs.

In contrast to the United States, the EU has taken a markedly different approach and is implementing the newly created Market in Crypto Asset (MiCA) framework for crypto regulation, something that Dr Gabbay was keen to praise: “[The EU] did things in the right order. The learning process in developing MiCA is very impressive, and when you look at the work they did, the research, the interviews, talking to market participants, understanding the pitfalls, understanding the challenges; I think that’s the right way to go about things. They’re very analytical.”

Meanwhile, it appears that crypto enterprises based outside the US are actively avoiding the US market.

“Other jurisdictions are developing their financial regulation [to include crypto], and in a way, the regulatory uncertainty that the SEC created is going to drive major crypto players away from the United States. Already it is, because if you can flourish as a legal, fully regulated business in Europe, but in the United States you’re risking litigation that will cost you millions and destroy your business, you won’t do that.”

And, as Dr Gabbay is engaged in private practice in this field, he was able to draw on his own experience about these issues. “We have a nice blockchain crypto practice and I don’t remember the last time a client who’s not in the United States already for some reason, didn’t just block the United States and do business elsewhere.”

This drives to the point that crypto is a global, digital, and at times, to the infuriation of regulators, anonymous enterprise, and that the capacity to near-instantly bypass geographical limitations on transacting is one of its key advantages. Relatedly, Dr Gabbay observes that: “The United States is not an aquarium, it’s part of a global economy and you can’t just seclude the United States from the global economy, and definitely not from the blockchain/cryptocurrency world that is completely indifferent to geographic order.”

Adjacent to this, there is the issue of what looks like an increasing desire all around to meaningfully link up the worlds of crypto and traditional finance, as is evident in the creation of Bitcoin ETFs, and growing corporate interest in blockchain integration.

Dr Zvi Gabbay: “The [crypto] industry needs to mature.”

“The [crypto] industry needs to mature and I can see from my clients that’s really where they are. They’re working on real products. We have the metaverse, we have cryptocurrency, that’s all an alternative universe. Then you have the conventional, economic existence, with money wires that take two weeks when it’s an international wire, and everything is slow, and what we’re seeing now is more and more development of bridges between the metaverse and the conventional system.”

However, for those bridges to be constructed “there has to be regulation.”

BlackRock and other firms’ much-anticipated filings with the SEC for the approval of spot Bitcoin ETFs have been, according to many analysts, a key driver of recent Bitcoin price action, but they are not yet a done deal. Although, there may have been indications from the Commission that such products are viable.

“You could have informal conversations with a regulator and in many cases – being an ex-regulator and having these conversations – I can tell if someone is willing to hear my arguments and maybe approve a product, or whether there’s just no chance in the world. And I think that BlackRock definitely has the right advisors that will hear that nuance and can probably tell whether there is a real openness on the SEC’s side, and that’s probably the reason they’re filing an application.”

“I don’t think they heard, ‘no problem we’ll approve it’, but I’m guessing that in these informal conversations they touched upon the points of pain, they thought of ways to address them, and I think the response was, ‘we’re not going to say that this is completely stupid, why don’t you submit it and let’s continue that conversation.’”

However, Dr Gabbay added an important caveat to this speculation, which is that other entities, such as Coinbase and Telegram, reported having previously been “in touch with the SEC, and they were talking and corresponding, going back and forth, and it was a fruitful conversation. And, then at a certain point the SEC stopped taking their calls, and after a couple of months, they were hit with a complaint. So in that case, that’s not the way a regulator should conduct its business.”

SEC, Politics, and Crypto

As the crypto industry draws closer to the mainstream, and amid complaints that the SEC is overstepping its remit and ruling by enforcement, politicians and political lobbying are becoming more relevant to the discussion. However, even as next year’s US presidential election approaches, it’s unclear whether or not party divides on crypto are entirely clear-cut.

“The previous administration was Republican, and under the Trump Administration, Jay Clayton was the Chairman of the SEC and regulation by enforcement started then, and continued, and I didn’t see them going out of their way to regulate crypto.”

Although on the other hand, Dr Gabbay, referring to a Congressional hearing earlier this year with SEC’s Chairman, Gary Gensler, described Republican frustrations: “Hearing the Republican delegates there, there’s serious criticism of the SEC. They were not polite, nice or courteous in any way. They were pro-business and very clear that Gensler’s approach, and the SEC’s approach, was not pro-business and did not provide the relevant clarity.”

The picture is of a need for coherence, calm analysis, and open-mindedness when it comes to the involvement of politicians.

“Now that [the crypto industry] is maturing, I think this is also the opportunity for politicians – definitely the more proactive, the more farseeing politicians – to step in and start offering their solutions, because that’s a crucial component.”

Perhaps some of the impasse in the United States also comes down to, as Dr Gabbay put it: “The SEC not being in the right mindset of hearing criticism, and maybe learning something from it and being accountable. You can’t only be righteous, and regulators have that tendency.”

Away from crypto, a current high-profile case in a New Jersey court saw the release of assets belonging to the founder of My Forex Fund, which had been frozen after the CFTC filed a complaint alleging retail fraud, while MFF contends the charges.

Regarding this case, Dr Gabbay stated: “MFF sold ‘simulated trading’, and as the judge correctly pointed out, ‘the environment may have been simulated but the trading was real’. In effect, clients were given the opportunity to trade, sometimes they were successful, sometimes they were not, and practically always, MFF was the counter party. Financial regulation is intended to protect clients exactly in these situations, and in my opinion, the judge was correct to point out that the fact that trading was not actually executed in a real stock exchange is immaterial.”

“That being said, I think that the basic idea behind MFF’s business has merit, and one can establish a legitimate business based on it, but in order to do so, proper disclosure needs to be made, and regulatory protections must be provided to clients, where the law requires such protections to be provided.”

The SEC has declined to comment on Zvi Gabbay’s remarks, but directed us to Gensler’s comments in testimony, and in a speech reiterating his view that crypto markets should be subject to securities regulation.

The Securities and Exchange Commission (SEC) has been reluctant on approving a spot Bitcoin exchange-traded fund (ETF), but according to Dr Zvi Gabbay, a partner and the head of the Capital Markets Department at the Barnea & Co. law firm, giants like BlackRock must have “right advisors” to guide them with their spot Bitcoin ETF application.

In the second part of our discussion with Dr Gabbay, an expert in financial regulation and enforcement, we learn about differing crypto approaches in the EU, whether crypto firms are still willing to do business in the US, the need for bridges between the crypto industry and traditional finance, also touching on political influence and the likelihood of approval for spot Bitcoin ETFs.

In contrast to the United States, the EU has taken a markedly different approach and is implementing the newly created Market in Crypto Asset (MiCA) framework for crypto regulation, something that Dr Gabbay was keen to praise: “[The EU] did things in the right order. The learning process in developing MiCA is very impressive, and when you look at the work they did, the research, the interviews, talking to market participants, understanding the pitfalls, understanding the challenges; I think that’s the right way to go about things. They’re very analytical.”

Meanwhile, it appears that crypto enterprises based outside the US are actively avoiding the US market.

“Other jurisdictions are developing their financial regulation [to include crypto], and in a way, the regulatory uncertainty that the SEC created is going to drive major crypto players away from the United States. Already it is, because if you can flourish as a legal, fully regulated business in Europe, but in the United States you’re risking litigation that will cost you millions and destroy your business, you won’t do that.”

And, as Dr Gabbay is engaged in private practice in this field, he was able to draw on his own experience about these issues. “We have a nice blockchain crypto practice and I don’t remember the last time a client who’s not in the United States already for some reason, didn’t just block the United States and do business elsewhere.”

This drives to the point that crypto is a global, digital, and at times, to the infuriation of regulators, anonymous enterprise, and that the capacity to near-instantly bypass geographical limitations on transacting is one of its key advantages. Relatedly, Dr Gabbay observes that: “The United States is not an aquarium, it’s part of a global economy and you can’t just seclude the United States from the global economy, and definitely not from the blockchain/cryptocurrency world that is completely indifferent to geographic order.”

Adjacent to this, there is the issue of what looks like an increasing desire all around to meaningfully link up the worlds of crypto and traditional finance, as is evident in the creation of Bitcoin ETFs, and growing corporate interest in blockchain integration.

Dr Zvi Gabbay: “The [crypto] industry needs to mature.”

“The [crypto] industry needs to mature and I can see from my clients that’s really where they are. They’re working on real products. We have the metaverse, we have cryptocurrency, that’s all an alternative universe. Then you have the conventional, economic existence, with money wires that take two weeks when it’s an international wire, and everything is slow, and what we’re seeing now is more and more development of bridges between the metaverse and the conventional system.”

However, for those bridges to be constructed “there has to be regulation.”

BlackRock and other firms’ much-anticipated filings with the SEC for the approval of spot Bitcoin ETFs have been, according to many analysts, a key driver of recent Bitcoin price action, but they are not yet a done deal. Although, there may have been indications from the Commission that such products are viable.

“You could have informal conversations with a regulator and in many cases – being an ex-regulator and having these conversations – I can tell if someone is willing to hear my arguments and maybe approve a product, or whether there’s just no chance in the world. And I think that BlackRock definitely has the right advisors that will hear that nuance and can probably tell whether there is a real openness on the SEC’s side, and that’s probably the reason they’re filing an application.”

“I don’t think they heard, ‘no problem we’ll approve it’, but I’m guessing that in these informal conversations they touched upon the points of pain, they thought of ways to address them, and I think the response was, ‘we’re not going to say that this is completely stupid, why don’t you submit it and let’s continue that conversation.’”

However, Dr Gabbay added an important caveat to this speculation, which is that other entities, such as Coinbase and Telegram, reported having previously been “in touch with the SEC, and they were talking and corresponding, going back and forth, and it was a fruitful conversation. And, then at a certain point the SEC stopped taking their calls, and after a couple of months, they were hit with a complaint. So in that case, that’s not the way a regulator should conduct its business.”

SEC, Politics, and Crypto

As the crypto industry draws closer to the mainstream, and amid complaints that the SEC is overstepping its remit and ruling by enforcement, politicians and political lobbying are becoming more relevant to the discussion. However, even as next year’s US presidential election approaches, it’s unclear whether or not party divides on crypto are entirely clear-cut.

“The previous administration was Republican, and under the Trump Administration, Jay Clayton was the Chairman of the SEC and regulation by enforcement started then, and continued, and I didn’t see them going out of their way to regulate crypto.”

Although on the other hand, Dr Gabbay, referring to a Congressional hearing earlier this year with SEC’s Chairman, Gary Gensler, described Republican frustrations: “Hearing the Republican delegates there, there’s serious criticism of the SEC. They were not polite, nice or courteous in any way. They were pro-business and very clear that Gensler’s approach, and the SEC’s approach, was not pro-business and did not provide the relevant clarity.”

The picture is of a need for coherence, calm analysis, and open-mindedness when it comes to the involvement of politicians.

“Now that [the crypto industry] is maturing, I think this is also the opportunity for politicians – definitely the more proactive, the more farseeing politicians – to step in and start offering their solutions, because that’s a crucial component.”

Perhaps some of the impasse in the United States also comes down to, as Dr Gabbay put it: “The SEC not being in the right mindset of hearing criticism, and maybe learning something from it and being accountable. You can’t only be righteous, and regulators have that tendency.”

Away from crypto, a current high-profile case in a New Jersey court saw the release of assets belonging to the founder of My Forex Fund, which had been frozen after the CFTC filed a complaint alleging retail fraud, while MFF contends the charges.

Regarding this case, Dr Gabbay stated: “MFF sold ‘simulated trading’, and as the judge correctly pointed out, ‘the environment may have been simulated but the trading was real’. In effect, clients were given the opportunity to trade, sometimes they were successful, sometimes they were not, and practically always, MFF was the counter party. Financial regulation is intended to protect clients exactly in these situations, and in my opinion, the judge was correct to point out that the fact that trading was not actually executed in a real stock exchange is immaterial.”

“That being said, I think that the basic idea behind MFF’s business has merit, and one can establish a legitimate business based on it, but in order to do so, proper disclosure needs to be made, and regulatory protections must be provided to clients, where the law requires such protections to be provided.”

The SEC has declined to comment on Zvi Gabbay’s remarks, but directed us to Gensler’s comments in testimony, and in a speech reiterating his view that crypto markets should be subject to securities regulation.





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