Regulators against cryptocurrencies. Who will benefit from the new rules?
US regulators are attacking the largest players in the crypto market. The US authorities began the year with pressure on the crypto business at such a pace that industry leaders fear being squeezed out of one of the largest markets. Since the beginning of the year, US regulators, primarily the Securities and Exchange Commission (SEC), have filed several lawsuits against some of the leading players in the crypto market or issuers of their assets. At the same time, banks that provide accounts and payment processing services for cryptocurrency platforms have also been hit. The Genesis trading group and the Gemini exchange were the first to feel the pressure of regulators this year. They were accused of failing to register the general crypto asset lending scheme and the Gemini Earn user income accrual program as activities falling under securities law. A month later, the Kraken exchange, one of the leading players in the Ethereum cryptocurrency staking niche, fell under a similar lawsuit and a $30 million fine. She was forced to scale down the staking program for US users. According to regulators, the exchange “promised” over 20% per annum in revenue from the service.
It is quite understandable that against the backdrop of an ever closer default of the dollar as a means of borrowing and payment, the United States is trying by hook or by crook to strangle any possible competitors or put them under strict control. In principle, active regulation of the industry is a natural workflow for its reorganization. Since the process itself is indistinct and fairly brazen in execution, it has affected many areas and people, although it may have been given too much emotional significance. It is worth recalling that the trend towards “restoring order” in the field of cryptocurrencies did not appear yesterday, the process has been going on for several years (for example, in Europe), but rather slowly. The main problem is that the regulatory instruments themselves are already outdated, and the sphere itself, as well as the processes in society, have become too dynamic. At the same time, accusations against the SEC that they “do not know what they are doing” are frankly groundless. The department has a sufficient level of knowledge to understand the nuances, but they use broad and controversial interpretations of laws and regulations.
In a further escalation of regulation, the New York State Department of Financial Services banned Paxos from issuing BUSD, the third largest stablecoin in terms of capitalization and widely used and branded on Binance, the largest crypto exchange. The amount of BUSD in circulation dropped by more than $2 billion in a matter of days as investors opted to shift funds to other assets. The ban on the issuance of the stablecoin BUSD has become perhaps the most resonant decision of the SEC, and the exclusion of Paxos from the list of issuers of the top three stablecoins inevitably provokes shifts in the market. As Zhao noted, about $2.45 billion of the capitalization of BUSD went to other stablecoins, in particular, to USDT from the Tether issuer, which is less subject to the actions of US lawmakers. According to the observations of the head of Binance, “the landscape of stablecoins is changing markedly.”
The channels for converting cryptocurrencies into fiat funds also did not go unnoticed by regulators. In January, the Federal Reserve (Fed) rejected Custodia Bank’s application to join its payment system, because the bank’s expressed positive attitude towards the cryptocurrency business “is very likely not consistent with safe banking practices” (utter nonsense, but it worked). Silvergate, another cryptocurrency-focused bank, is under scrutiny from U.S. lawmakers for its role in providing services to the bankrupt FTX exchange.
Binance in February, in principle, suspended the ability to buy cryptocurrency for dollars without explanation. One of its banking partners, Signature Bank, previously stated that it would no longer allow crypto exchange customers to buy or sell assets worth less than $100,000. Responding to questions from subscribers during a recent Twitter Spaces broadcast, Binance CEO Changpeng Zhao suggested that, most likely, regulators asked banks to “either not work with cryptocurrencies at all, or approach working with them with increased caution.” The exchange itself is already introducing alternatives to BUSD, for example, turning to the less popular stablecoin TUSD (TrueUSD), which at the time of publication has a capitalization of about $969 million, according to CoinMarketCap. However, answering questions on the same broadcast, Zhao noted that, given the mounting pressure from US regulators, dollar-pegged stablecoins may eventually lose market share in favor of “stablecoins” backed by the euro or other world currencies. In such a scenario, the exchange’s retail clients are likely to be able to quickly adapt to the euro, Turkish lira or other currencies, but large investors will obviously need significant liquidity to move capital. The inability of Binance to work with the most liquid and capitalized stablecoins pegged to the dollar may become an obstacle to the platform’s institutional transactions.
The lack of clear rules regarding cryptocurrencies and the openly hostile attitude of regulators in the long term will lead to the fact that America will lose its status as a financial center, Brian Armstrong, head of the second largest cryptocurrency exchange Coinbase, said, adding that “cryptocurrencies are open to everyone” and leadership in the industry is being pulled over the EU and Hong Kong. In Hong Kong, trading in crypto assets is being introduced into the legal field, despite the ban on cryptocurrency circulation and mining in mainland China. It is this information that Armstrong refers to, and he is not the only one from the industry in the United States who sees the actions of Hong Kong and Asia as a whole as a trigger for the expansion of the legal crypto market.
The possibility of legal purchase of cryptocurrency in Hong Kong, in our opinion, however, “has a double bottom”. Access will be strictly through licensed venues and subject to strict Know Your Customer (KYC) rules and asset listing requirements. At the same time, the authorities of both Hong Kong and China openly declare that they are in favor of the development of the blockchain technology itself and the implementation of Web 3.0. The ban is not on the technologies themselves, but on “potentially dangerous for the people” activities.
European regulators are also trying to speed up the withdrawal of the crypto industry into the legal field. The ECB urges EU banks to apply the rules developed by the Basel Committee on Banking Supervision when working with crypto assets, even before they officially come into force. As a representative of the Central Bank told CNBC reporters, in matters of the introduction of digital currencies, the regulator is afraid of being “in the position of a sandwich” between the United States and China, not having time to introduce its own market regulation rules. Europe’s desire to join the digitalization race is understandable. This is necessary both to “preserve reputation” and from an economic and political point of view, opening up opportunities for alternative interaction with other countries.
The activities of both European and Asian regulators are “desperate attempts to keep up with the new spirit of the times”, to maintain control and maintain power and authority over the population of their countries in the international arena. In our opinion, if we do not change the methods, in the medium term, such actions are likely to lead to failure.
In any case, investors are advised to take some time to think before making any investment. One of the legitimate forms of investment is, for example, the ASTL investment project, which allows investors to have the opportunity to directly invest fiat and cryptocurrency assets in a stable passive income that obviously exceeds inflationary expectations and is not subject to any sanctions, blocking and confiscation. The ASTL project is a simple and elegant solution for potential investors — an investment in the development of the real sector of a diversified portfolio of cryptocurrencies, with a fairly high ROI (up to 12% annually) with payments in stablecoin (USDT). Details can be found at https://astl.io.
