Third wave: US Regulators vs Cryptocurrencies

As we anticipated, the American and European financial systems are actively resisting the “new money”. In the US, the Treasury has joined the SEC in its efforts, and in the EU, the opposition comes from the European Central Bank.

In mid-September, the US Department of the Treasury was reportedly developing guidelines for stablecoin issuers. Once these requirements are accepted, issuers will need to guarantee customers the ability to withdraw money from digital stablecoins. However, the Financial Stability Oversight Council would first have to identify the economic threats of this type of cryptocurrency. The Treasury is currently studying the mechanism of processing transactions involving stablecoins and how market conditions might affect them.

Turns out, they have concerns over massive crypto asset sell-offs potentially threatening financial stability and dangerously fast growth of some stablecoins. The worries of economic officials are understandable: according to CoinMarketCap.com, there is currently more than $ 120 billion worth of stablecoins in circulation. Digital stablecoins are increasingly being used for services that resemble traditional banking, such as savings accounts, but they don’t provide the same type of consumer protection. Or at least, it is the American government financiers’ view of DeFi.

The officials are also concerned about managing tokens generated by tech giants such as Facebook. As you might recall, there is a group, which includes Facebook, now creating the Diem stablecoin (previously Facebook’s own project called Libra).

American financial authorities have rallied around the idea of regulating the cryptocurrency market, often perceived as a new type of shadow banking and the “Wild West” of finance.

Politicians are also trying to play up this issue. On September 14, Massachusetts Senator Elizabeth Warren called on US Securities and Exchange Commission (SEC) Chairman Gary Gensler to strictly manage digital assets to protect small investors. According to her, the cryptocurrency market collapse on September 7 shows the need for industry regulation, and the SEC is responsible for implementing it.

Speaking at a Senate Banking Committee hearing, Warren brought up how the largest crypto exchanges had been overloaded during the sharp decline in quotations, resulting in some of their functions becoming unavailable to users. In the example she gave, an investor could have invested in a cryptocurrency before the market crash and tried to withdraw his money during the maximum overload. In Warren’s example, the investor had no chance of protecting their savings. “$ 400 billion in market value evaporated in a matter of hours “, — said the politician.

Gensler, the SEC chair, agreed with the senator and noted that in this case, retail investors didn’t have a way of protecting their funds due to the absence of federal law regarding crypto exchanges. At the same meeting, he compared the digital asset sector to the Wild West and urged cryptocurrency projects to register with the SEC. According to Gensler, hundreds of tokens on various trading platforms may be subject to securities laws and require registration.

Furthermore, in his opinion, without a regulatory framework, the cryptocurrency market won’t be able to protect its participants from fraud and illegal activity, nor will it provide them with financial stability. The SEC is working with the CTFC, the Federal Reserve, the Office of the Comptroller General, and other President’s Working Group on Financial Markets members to address these challenges, Gensler said.

Following a similar trend, the President of the European Central Bank, Christine Lagarde, called cryptocurrencies speculative assets in an interview with Bloomberg and questioned their claims of being real currencies. Lagarde asked for distinguishing between different types of cryptoassets and cited stablecoins as an example. According to the ECB head, it is the digital stablecoins that should be especially strictly regulated by the supervisory authorities.

“Cryptocurrencies are not actual currencies. Period.”, — stated Lagarde.

What is the reason for the new wave of pressure from American and European regulators on cryptocurrencies and the blockchain industry? (That seems to be following the Chinese example, by the way.)

It is likely due to them seeing their opponent become more powerful and influential before their very eyes. Two or three years ago, the fight was between cryptocurrencies and fiat money. Today there are “traditional” cryptocurrencies, stablecoins (that combine the advantages of both fiat money and cryptocurrencies), DeFi (a competitor to banks offering much more attractive conditions), as well as yesterday’s crypto exchanges, which are turning into something new and unknown, some type of universal financial conglomerates (https://cryptoinsight.ae/gennadiy-cholovenko-binance-is-gradually-becoming-a-direct-competitor-to-the-banking-system/).

And while it was all true a couple of years ago, it just wasn’t as prevalent, and therefore wasn’t considered a threat by the adherents of traditional finance. Well, it is now. Hence, by the way, the pressure on Binance. Just recently, it came out that the US authorities expanded the scope of their investigation into the largest cryptocurrency exchange. They now explore potential insider trading and market manipulation cases. According to a Bloomberg source, regulators reject the fact that Binance, which is not headquartered in any country of the world, provides tens of billions of dollars’ worth of cryptocurrency trading services outside of government control. They are not willing to accept this…