It wasn’t love at first sight, and it has taken a lot of conversation on both sides, but regulators and participants in the burgeoning token economy are sending signals that they are getting to know each other a lot better.

On Tuesday, the U.S. Department of the Treasury released a report, titled “Nonbank Financials, Fintech and Innovation,” which proposed recommendations to reduce red tape and foster nascent technologies in the financial arena. Of particular note was the Treasury Department’s recognition of the G20 international forum and its efforts to set guidelines for monitoring cryptoassets.

Also on Tuesday, the Office of the Comptroller of the Currency opened the doors for fintech companies to apply for special national charters that could allow some cryptocurrency firms to operate without a bank, bypassing state control.

The latest news offered speakers and attendees at the “Blockchain Innovators” session during Fintech Week in New York City on Wednesday, hosted by Thomson Reuters,  an opportunity to express optimism that federal regulators could be willing to accept fintech as a legitimate player moving forward.

“I think it’s a very positive step for a number of reasons,” Kari Larsen, counsel with the law firm of Reed Smith, said about the OCC decision. “There was a lot of state resistance to this because they wanted jurisdiction.”

Case law charts a path

Encouraging signals for the fintech industry from the OCC and Treasury Department have been balanced against lawsuits progressing through through the judicial system. The cryptocurrency firm Nano became the target of a class action lawsuit this spring when the company directed investors to the BitGrail exchange, which lost $170 million of invested funds in February.

The lawsuit is making its way through New York courts as case law is becoming the first indicator of regulatory direction for crypto firms. “A lot of guidance we’re going to be getting over the next six months to a year will be through the courts,” said Rebecca Rettig, crypto/blockchain litigator with the firm of Dontzin, Nagy and Fleissig. “You’re going to see a lot of different guidance from a lot of different judges around the country.”

SEC gets engaged

Panelists at the Fintech Week event also indicated that the Securities and Exchange Commission is deliberately and methodically working out guidance for cryptocurrency firms, although nothing formal has been issued and may not be for quite a while. However, a recent transcript from an SEC round table highlighted SEC Chairman Jay Clayton’s acute interest in the subject.

“The SEC is meeting with a lot of companies,” Larsen said. “What we’re hearing is the guidance won’t be written. It will be verbal and good luck to you.”

Although Congress recently held hearings on the cryptocurrency industry and one influential member has called for oversight of markets for initial coin offerings and digital tokens, speakers on Wednesday did not see legislative action anytime soon.

“There is nothing in front of anyone in Congress,” Larsen said. “They are still trying to figure out what in the world this is.”

Investment continues to flow

Pressure on regulators to bring order to a fast-growing market will likely rise as new cryptocurrencies spring to life and investment dollars continue to flow into new companies and funds. There is a feel of the Gold Rush in the burgeoning token economy as monetary worth continues to soar.

“At the highest level, we are witnessing one of the greatest value creation moments in technology,” said Wendy Xiao Shadeck, investment manager for Northzone. “I want to invest in the next wave of value creation on the Web and a lot of that will happen through tokens.”

There are signs on an almost weekly basis that interest in cryptocurrency investment continues to grow. Lightspeed Venture Partners, an early investor in Snap Inc., recently announced a new startup fund that will include cryptocurrency, and investors are quick to point out that decisions to back companies are more grounded in technologies today than speculation.

“We like to say we invest in technology and not tokens,” said Caroline Kassie, partner with Blockchange Ventures, during a panel discussion. “We really place a lot of faith in rock star developers and phenomenal teams.”

Interest in data privatization

One of the companies Kassie’s firm has backed is Tokenize Inc., an early-stage venture focused on developing a biometric-based wearable ring that can make payments or power a computer without needing third-party accessible credentials.

“There’s been a real spotlight on how Internet giants are using our data,” Kassie said. “We like to see that there’s excitement among developers and the firms we co-invest with.”

Control over private access and personal data is an emerging theme for a number of startups in the token economy. One Fintech Week presenter, uPort, is creating an identity system that allows users to register their credentials on Ethereum and then sign transactions and manage their own keys and data.

The company made news earlier this year when the city of Zug, Switzerland, which has been designated as “Crypto Valley,” successfully implemented a blockchain voting trial using the uPort app. “The new paradigm requires putting the user at the center where they are able to control their own data,” said Alice Nawfal, director of business operations at uPort. “Blockchain has made this a reality.”

It’s not yet clear what will emerge from the wave of crypto value creation and the work of regulators to manage it. The feeling among industry players in New York City this week was optimistic given Tuesday’s regulatory news and bullish investors putting their cash by the fistful into the token economy.

“Regulation is coming and that’s positive,” said Brett Noyes, chief executive of UnVentures and director of North American events at Fintech Worldwide. “People need to know the rules. If you want to build long-lasting companies, this is all good.”

Photo: Mark Albertson/SiliconANGLE