July 2018 marked a pivotal moment in the intersection of traditional finance and cryptocurrency regulation. The Financial Industry Regulatory Authority (FINRA) issued a sweeping regulatory notice on July 6 requiring its 3,700 member firms to disclose any involvement in digital asset activities, while the Chicago Board Options Exchange (CBOE) moved forward with a landmark application for a VanEck SolidX Bitcoin ETF before the Securities and Exchange Commission (SEC). Together, these developments signaled that Wall Street’s regulatory apparatus was finally grappling with the cryptocurrency phenomenon in earnest.
TL;DR
- FINRA issued a regulatory notice on July 6, 2018, asking 3,700 member firms to disclose all crypto-related activities
- Covered activities include trading, mining, ICOs, custody, advisory services, and blockchain technology use
- CBOE filed a formal SEC application for the VanEck SolidX Bitcoin ETF in June 2018
- The proposed ETF would offer shares worth approximately 25 BTC each, backed by $125 million in insurance coverage
- SEC had recently determined that Bitcoin and Ethereum were too decentralized to be classified as securities
FINRA’s Broad Crypto Sweep
FINRA’s regulatory notice represented one of the most comprehensive attempts by a traditional financial regulator to map the cryptocurrency landscape within the brokerage industry. The self-regulatory organization explicitly listed the types of activities it wanted disclosed, leaving little room for ambiguity. The covered activities included purchases and sales of digital assets, management of crypto-focused pooled funds, participation in initial coin offerings, creation of secondary trading platforms, cryptocurrency custody services, mining operations, and even the acceptance of Bitcoin from customers.
The notice was clear about its motivations. FINRA stated it was concerned about “fraud and other securities law violations involving digital assets” and wanted to understand the full scope of member involvement in the space. Firms were given until July 31, 2019 to maintain ongoing disclosures with their Regulatory Coordinators, and those planning to enter the crypto space were instructed to notify FINRA even before launching operations.
The directive built upon FINRA’s 2017 investor warning about pump-and-dump schemes targeting ICO investors. By mid-2018, with Bitcoin trading at approximately $6,360 and the total crypto market cap near $234 billion, the urgency for regulatory clarity had intensified. Multiple SEC enforcement actions against fraudulent ICOs had already made headlines, and FINRA’s disclosure mandate was widely interpreted as a precursor to more formal rulemaking.
CBOE’s Bitcoin ETF Bid Gains Momentum
While FINRA was tightening oversight on the brokerage side, CBOE Global Markets was actively pursuing what many in the industry called the “holy grail” of cryptocurrency investment products: a regulated Bitcoin ETF. The application, filed with the SEC in June 2018, proposed the VanEck SolidX Bitcoin Trust, a joint venture between asset manager VanEck and fintech firm SolidX.
The proposal was notable for several reasons. Each share of the Trust would represent approximately 25 Bitcoins, valued at roughly $159,000 at July 2018 prices. Crucially, the Trust committed to purchasing Bitcoin primarily through over-the-counter markets without leverage, and it outlined a substantial insurance policy: $25 million in primary coverage plus $100 million in excess coverage, with the ability to increase coverage as the Trust’s Bitcoin holdings grew.
This was the Trust’s third attempt at securing an ETF license, following two rejections in early 2017. The SEC had previously cited concerns about unregulated Bitcoin markets as the basis for its denials, stating that “the significant markets for bitcoin are unregulated” and therefore inconsistent with Exchange Act requirements. However, the landscape had shifted considerably by mid-2018. SEC officials had determined that both Bitcoin and Ethereum were sufficiently decentralized to fall outside the definition of securities, removing one significant regulatory hurdle.
Regulatory Winds Shifting
The CBOE application benefited from a broader shift in regulatory posture. In late June 2018, the SEC announced it was developing a new framework for approving open-ended, low-risk ETFs that could ease the path for cryptocurrency-based products. The proposed rules were designed to foster innovation in the ETF space while maintaining investor protections, a balance that the crypto industry had long argued was achievable.
The timing of these parallel developments was significant. FINRA’s disclosure mandate would give regulators unprecedented visibility into how traditional financial institutions were engaging with digital assets, while the CBOE ETF application tested whether the SEC was prepared to grant mainstream legitimacy to Bitcoin as an investable asset class. JP Morgan, in a February 2018 research note, had described Bitcoin ETFs as the “holy grail for owners and investors,” underscoring the transformative potential of a regulatory green light.
Bitcoin traded at approximately $6,360 on July 15, 2018, with Ethereum at $450 and XRP at $0.45. The total market capitalization of all cryptocurrencies hovered around $234 billion, a fraction of the levels seen during the December 2017 rally. Market participants widely viewed regulatory clarity as a prerequisite for the next major upward move, and the combination of FINRA’s engagement and CBOE’s ETF application suggested that clarity might be approaching, albeit slowly.
Why This Matters
The dual developments of FINRA’s disclosure mandate and CBOE’s ETF application in July 2018 represented an inflection point in the relationship between cryptocurrency and traditional finance. FINRA’s notice demonstrated that regulators were no longer ignoring crypto activity within their member firms but instead actively cataloging it, likely as a foundation for future rulemaking. The CBOE ETF bid, meanwhile, tested whether the institutional infrastructure of Wall Street could accommodate Bitcoin within existing regulatory frameworks.
These events laid groundwork that would prove consequential years later. The SEC would ultimately reject multiple Bitcoin ETF proposals before finally approving spot Bitcoin ETFs in January 2024. But the regulatory conversations, market infrastructure development, and institutional engagement that began in earnest during mid-2018 were essential precursors to that eventual breakthrough.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Cryptocurrency investments carry significant risk, and readers should conduct their own research before making investment decisions.