News roundup: On Wednesday, eight crypto firm executives, including Alesia Haas, the CFO of Coinbase, will testify before a US House banking panel regarding the “challenges and benefits of financial innovation.”
What’s going on: Amid the public-forum policy discussions, the federal agencies are developing a crypto asset road map to clear up whether banks can legally conduct certain crypto activities.
The agencies started by focusing on building commonly agreed-on crypto terminology, identifying key risks related to cryptos, and analyzing current crypto regulations to see how they can be built out and clarified.
The regulators have reviewed crypto custody, facilitating customer crypto transactions, loans collateralized by crypto assets, and payments—including with stablecoins.
Meanwhile, crypto firms that have enjoyed this past year’s boom in adoption are braced for more regulatory oversight.
What’s at stake: The global crypto market cap hovered around $2.6 trillion in value last week, per CoinMarketCap.
But what is this crypto thing? Clayton, Gensler, and federal agencies all suggest crypto tokens are “largely” used to raise money for entrepreneurs—and, as such, meet “the time-tested definitions of an investment contract and are thus under the securities laws,” in Gensler’s words.
This would mean crypto issuers that fail to register with the SEC are violating the law and could be subject to enforcement actions. But despite the seeming consensus, the government still hasn’t legally classified cryptos—so agencies like the Fed and the SEC have limited powers over them. This means crypto issuers are not held to standard disclosure requirements.
Operating with limited and changing guidance, crypto players fear sudden shutdowns or lawsuits—like the SEC’s now year-old action against Ripple Labs for offering unregistered securities.
What’s coming? Crypto players like Coinbase, Binance, and Ripple have weighed in with policy proposals, “wish lists” for crypto regulation, and vociferous criticism of how regulators decided that cryptos were securities.
But as we predicted, cries of government overreach have fallen on deaf ears. Blockchain technology and trends change quickly, but securities laws do not. Regulators are moving toward formal rule-making with their usual deliberation.
They’ve picked up the pace a little—working in “policy sprints,” in Agile methodology—which has led Morgan Stanley analysts to predict they’ll hand down guidance sooner than expected. But the analysts also cautioned that moving too fast could lead to “measures that inadvertently inhibit adoption of cryptocurrencies.”
There’s no question that the entry of the SEC will change the way in which cryptocurrency markets work. But regulatory measures are unlikely to prohibit the assets altogether or “spread peanut butter” over the booming crypto market. They’re more likely to promote mainstream acceptance: