Regulation
Bitcoin prices should not distract from the need for better regulation
Bitcoin reaching record highs should not distract from regulatory needs
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While bitcoin briefly hit all-time highs in March 2024, bitcoin and crypto investors have had a lot to celebrate so far this year. Following the approval of Bitcoin spot ETFs, and after overcoming the price decline and subsequent public skeptics, the price of Bitcoin and many other cryptoassets saw a rapid increase. Additionally, regulators outside of the SEC appear to have come to the conclusion that crypto needs to be heard to stay. More precisely, the president of the CFTC recently commented that if given the necessary framework and authorization, the CFTC could develop effective regulatory guidelines within 12 months. This is certainly an about-face from previous comments and public statements, which focused on interagency infighting and lack of cooperation.
Despite these positive trends, investors in Bitcoin and other cryptocurrencies should not lose sight of a fundamental reality that remains unchanged: the regulatory and operational environment for crypto entrepreneurs and innovators remains challenging. Despite all the success generated by spot ETFs, including the wealth accumulated by crypto investors during the recent bull market, there remain significant obstacles to the continued growth and development of the sector. Overshadowed by the wealth effect caused by rising asset prices, these issues and regulatory hurdles continue to pose challenges that need to be addressed.
Let’s take a look at some of the things crypto advocates need to keep in mind, even as prices are on the rise.
SEC Continues to Block Compliance
Even after the SEC approved the issuance of 11 Bitcoin spot ETFs, the SEC remains an obstacle to greater token registration and tokenization of broader financial markets. Declarations of Gary Gensler reinforcing the mindset and approach that crypto companies simply choose not to register. Despite the president’s statements that registration is a simple form and that businesses that are not registered do so voluntarily, this casual attitude masks a deeper problem that needs to be addressed.
Assuming the registration process is as simple and straightforward as advertised, companies following this advice to register tokens would find themselves in a bind. Registered tokens, which would reaffirm the President’s position that all tokens are equity securities, can only be traded on registered exchanges through registered bankruptcy brokers. Although FINRA has approved a handful of institutions to deal in crypto tokens, the SEC has not authorized any currently registered exchange or broker-dealer to list, hold, or trade crypto tokens.
In essence, regulatory compliance through the SEC remains a virtually impossible task.
The OCC undermines banking innovation
According to the Banking Disruption Index, nearly 60% of Americans Respondents are dissatisfied with the level of products and services currently offered by American banking institutions. Given that banking is a lucrative global business and the financial benefits of tokenized payments have been recognized via the adoption of blockchains by major TradFi institutions, crypto investors might be surprised to hear about the continuing regulatory hurdles to greater banking innovation.
The OCC continues to thwart the efforts of the banking-as-a-service industry to expand and offer a host of more efficient and cost-effective services to customers. Specifically, the OCC has been publicly cautious about BaaS due to concerns about how these companies handle customer data, monitoring tools for bank secrecy purposes, and how whose new entrants into the banking field manage the multitude of existing rules. Essentially, this hesitation has created an environment in which TradFi institutions serve as gatekeepers, since new entrants to the space seeking to make/receive dollar payments must work with licensed financial institutions.
Combined with the fact that the OCC appears opposed to developing specific regulations or new rules for banking disruptors, this has created an environment that significantly reduces the banking industry’s opportunities for innovation and competitiveness.
State innovation must be encouraged
Given that federal agencies in charge of financial markets and the banking system appear unwilling or unable to adopt new ways of thinking about and dealing with financial assets or instruments, an interim path would be to embrace government-driven innovation. State. Although New York has been criticized for the composition and enforcement of the BitLicense regulations, the fact remains that it is a regulatory framework, even if it has proven difficult to comply with for businesses. Another example is the state of Wyoming which has passed over 12 laws to integrate blockchain into the business environment, created and codified special purpose depository institutions to handle crypto transactions and is currently working on developing a state-based stable token.
These efforts, as encouraging and innovative as they are, are not a substitute for federal regulatory changes and, ideally, the U.S. Congress. A patchwork of state regulations should be celebrated and encouraged, but if not reinforced by federal follow-up actions, it will not be enough to create a sustainable and stable environment for crypto’s continued growth and innovation.
Bull markets are always a cause for celebration among investors, but should not obscure the need for a better regulatory environment.