#203—Crypto’s regulatory moment

And what people are saying about Biden's EO

USBC

Mar 14, 2022

ICYMI: EPISODE 16—How XUMM Wallet is changing the game

This week:

Biden’s executive order on crypto
What people are saying
Russian sanctions put crypto in the spotlight
What everyone is reading
Stuff happens

1. Biden’s executive order on crypto

First it was leaked, which saw crypto markets briefly spike upward. By the time it was released, there weren’t too many surprises left.

Here are the main bullet points (via /jclewis):

Protect U.S. Consumers, Investors, and Businesses
Protect U.S. and Global Financial Stability and Mitigate Systemic Risk
Mitigate the Illicit Finance and National Security Risks Posed by the Illicit Use of Digital Assets
Promote U.S. Leadership in Technology and Economic Competitiveness to Reinforce U.S. Leadership in the Global Financial System
Promote Equitable Access to Safe and Affordable Financial ServicesSupport Technological Advances and Ensure Responsible Development and Use of Digital Assets
Explore a U.S. Central Bank Digital Currency (CBDC)

All of which reads reasonably. The EO is clearly drafted in a way as to not offend any of its many intended stakeholders, check all the boxes, and throw everyone a bone. That should be seen as a positive. Without giving much away, the administration signals to the rest of us that they’re at least honing in on the right things.

Crypto is now on the main stage, and now, as a country, we’re being directed by the President to all collectively give this a big think as to how we best move forward. (From the EO, it appears the Treasury could have a prominent role in that process.)

That’s a good start, but just that—a start.

In terms of regulatory clarity, there’s still a ways to go.

As our resident regulatory expert /jclewis noted, we shouldn’t expect something concrete anytime soon given the way DC’s political machine works. After all, the midterm elections are later this year, leaving little wiggle room for actual legislation.

Relevant:

2. What people are saying

Protocol Fintech has a solid roundup:

“First and foremost, this is an affirmation that crypto is here to stay,” Ripple CEO Brad Garlinghouse tweeted.

Coinbase Chief Policy Officer Faryar Shirzad said “digital assets are now widely embraced by millions and there's growing interest in it from officials across government. Today, the White House has confirmed they know this too.”

Garlinghouse echoed that point, saying the White House “finally” said “what we and the industry have been saying for years — if the U.S. wants to maintain its status as a responsible tech leader, it needs to provide a clear regulatory framework for an industry that’s exploding in growth.”

The regulators made it clear they’re prepared to work … with other regulators. Gary Gensler said he looked forward to “collaborating with colleagues across the government” to focus on “protecting investors and consumers, guarding against illicit activity and helping ensure financial stability.”

The Biden order didn’t address a key request from the crypto industry: rationalizing the multiple agencies weighing in on crypto regulations. Rep. Don Beyer, who introduced a crypto regulation bill last year, called this out in a statement: “The order does not clearly delineate regulatory responsibility between the SEC and the CFTC.” He also noted that the order didn’t specifically address stablecoins.

The order is best thought of as “directing agencies to study the crypto industry in a more methodical and coordinated approach” instead of relying on “a patchwork of rules,” Kristin Smith, executive director of the Blockchain Association, said. In other words, it will take time, and a lot of process.

Coindesk:

The order has been the source of much handwringing in the crypto community since its announcement in October. Many were concerned the order would call for sweeping regulatory crackdowns on crypto; the relatively light-touch approach revealed in the fact sheet – no new regulations on the sector and no thumb on the scale for what specific positions the Biden administration wants agencies to adopt – were met with widespread relief.
“It was better than I thought it was going to be,” said Kristin Smith, executive director of the Blockchain Association, a Washington, D.C.-based crypto industry group. “Given all of the FUD that has been out there about a regulatory crackdown, I think this is obviously in stark contrast. This is much more positive and thoughtful.”
Big players in the crypto industry took to Twitter on Wednesday to share their thoughts on the executive order. Sam Bankman-Fried, CEO of crypto exchange FTX and a major Biden donor, called the order “constructive.” Circle CEO Jeremy Allaire praised the order’s focus on the rapid growth of crypto and its calls for “constructive problem solving around known risks that exist with the legacy financial system.”

Sources:

3. Russian sanctions put crypto in the spotlight

Naturally.

The FBI isn’t worried, though. Cointelegraph:

FBI director Christopher Wray isn’t worried about Russia using crypto to bypass sanctions. “The Russians' ability to circumvent the sanctions with cryptocurrency is probably highly overestimated on the part of maybe them and others,” he said in a Senate hearing.

That makes sense. Transactions on the blockchain are public. Would be sanction evaders still have to deal with on and off ramps (when they convert their crypto to fiat or the other way around)—which flow through traditional finance and custodians. (Remember the $500 Walmart gift card?)

And despite its $3 trillion market, crypto’s liquidity still pales in comparison to the demands of the global financial system.

But again, a worthwhile conversation to have.

Relevant:

4. What everyone is reading

If Biden’s EO represents where crypto is going, the Verge’s takedown of Justin Sun is a vivid portrait of where crypto has been—allegedly (via /easwee).

One particularly juicy bit:

Everywhere else at Poloniex, token listing requirement approvals slackened — a return to “YOLO Polo,” as one employee described it. Sun also began impatiently bulldozing Poloniex’s KYC rules, which were slowing Poloniex’s user adoption in China to a crawl. A former employee said the logjam enraged Sun. “Fake the KYC!” he screamed at one meeting. “Fake it!”
To approve new customers as quickly as possible, Poloniex built an automated KYC system, but according to a former employee, it was permissive. It virtually rubber-stamped government IDs of any kind, they explained — “Didn’t matter if they submitted a pic of Daffy Duck.”
Sun also seemed to have found a completely different way to use Poloniex. As one former employee put it: “I think over time, he started to see all the possibilities of using Polo as more or less his personal bank.” But just one problem: all the money on the exchange belonged to the users.

Source:

Via /easwee—The many escapes of Justin Sun