Why crypto regulation can be a long-term victory
Washington’s potential for more cryptocurrency regulations sounds like bad news for cryptos … but is it?
What is happening?
Last week, the White House appointed Willow Omarova as the head of the Office of the Comptroller of the Currency (OCC). The OCC oversees consumer banking services and oversees some of the largest lenders, including JPMorgan (JPM) and Bank of America (BAC). Omarova is far from being cryptocurrency friendly. She argued that coins are threats to the stability of the economy and that private companies can abuse tokens to avoid public guarantees. Omarova also said that cryptos allow banks to engage in more activity outside of the oversight of the Fed and other regulators.
Why this could be good
Despite all of this, traditional investors and crypto-focused traders have reason to be optimistic.
First of all, Saule Omarova is certainly qualified because she was a special advisor to the Treasury Department during the administration of George W. Bush and is a professor of law at Cornell University who specialized in corporate transactions. and financial regulatory advisory work while at Davis Polk & Wardwell.
Second, for crypto investors, Omarova cannot be much more anti-cryptocurrency than the person she is replacing. Michael Hsu, who has led the OCC since May, recently said that crypto and decentralized finance looked like the instruments that led to the financial crisis, stating: “Crypto / DeFi is on a path that looks like the CDS from the early 2000s. “
But more importantly, crypto regulations aren’t inherently a bad thing.
Regulation = Legitimacy?
While coins such as Bitcoin gain much of their popularity because they are not under the authority of a central bank, cryptocurrencies potentially have a lot to gain from those authorities. While crypto enjoys some advantages of not being an official currency for any country outside of El Salvador (such as a lot of use for semi-legal activities), it has more to gain from being officially accepted.
Retailers and payment systems such as Tesla and PayPal accepting bitcoin are steps in the right direction, but legal authorities have regulations for crypto that will give it some legitimacy it just doesn’t have. moment. In order for a cryptocurrency to become a regular form of payment, it may need to come under the umbrella of regulators and financial institutions.
The real question is which coins will actually benefit from regulation and which will be scrutinized the most by the OCC, SEC, Federal Reserve and other regulators.
Winners and losers
The big winners from any kind of crackdown and regulation will be the biggest coins with the highest market capitalization and currencies that actually have a unique value proposition. Obviously, Bitcoin and Ethereum are the two biggest names that stand out as these two coins represent around 63% of all cryptocurrencies by market cap. These are also the only two coins that most casual investors are familiar with. Currencies of this size are going to be regulated by the authorities because they are the coins that “threaten the stability of the economy”. Big stablecoins, like Tether and USDC, which leads to who doesn’t win.
Sh * tcoins. The Federal Reserve and regulators who worry about the stability of the financial system don’t care, because they literally represent so little of the market that any “suspicious” activity that takes place here does not threaten the global economy. . Of course, regulators don’t want shady things to happen at all, but there are higher priorities than issues likely to arise due to Soulja Boy’s upcoming cryptocurrency. These coins may be even less regulated and therefore preferred for some meme traders and eccentric types, but they are losing out in the game of becoming a legitimate form of payment that brings all kind of value to the economy and the world. A regulator with an investor protection-focused mandate, like the SEC, could step in and try to crush projects that seem particularly fraudulent.
Finally, stable coins are in an interesting situation and are currently the priority of regulators because they are linked to fiat currencies. These coins do not necessarily offer much growth potential as they are explicitly designed to remain priced stable (hence the name) but offer considerable value to institutions as a type of Money market funds. Essentially, at present, individuals can use stablecoins such as tether as a way to transfer money into other currencies or use it as a very short term loan (i.e. say overnight loans) to provide liquidity to the markets. These types of investment vehicles allow much faster transfers and loans in parts of the financial system that are generally highly regulated.
So, at the end of the day, the OCC will be led by another crypto critic. However, worrying about the ability of crypto to destabilize the economy is not necessarily a bad thing for crypto in general. Certain rules and the elimination of bad operators could encourage wider adoption. So, it looks like some increased regulations could be a win for the cryptocurrency in the long run, even if it seems to defeat the original purpose of many crypto projects.