Regulation
Crypto will prevail in the evolving regulatory landscape
Crypto is not dead.
Despite last year’s very significant and systemic implosions in the crypto world, it is about to reach a turning point in its journey towards mass adoption. The 2008 financial crisis sets a historical precedent for the upcoming resurgence of crypto. This shows that the process is long, but well underway.
I believe three regulatory trends will push crypto towards a tipping point. First, sentiments are changing in the United States. Second, the “regulatory cascade” – a term I use to describe the international rule-making process – has been activated. Third, the industry contributes to self-reform.
United States
Reasonable observers advocate for sensible regulation of the crypto market because they understand that the adoption of digital assets is an economic competitiveness and national security issue in the United States, in addition to a protection issue. consumers.
This view has once again become dominant in Congress, where a new group of bipartisan lawmakers have introduced legislation that promotes these core interests.
THE Legislation on stable payments is emblematic. By conservatively defining stablecoin reserve requirements, the bill protects consumers. By identifying which entities can issue them, it provides a clear path for businesses. And by creating demand for dollars and U.S. Treasuries, it protects the dollar’s role as the world’s reserve currency.
There is no guarantee that a crypto bill will pass, but we can at least enter crypto’s peak leverage moment. If crypto continues to win in district and circuit courts, it will become increasingly difficult for lawmakers to defend the status quo. For those who continue to believe that opposition to crypto is a political winner, they will have the opportunity to test this hypothesis with the American electorate.
The waterfall
The stage is set for regulating digital assets on a global scale, with or without U.S. involvement.
As was the case during the last financial crisis, standard-setting bodies such as BIS, FATF, FSBAnd IMF will probably lead. We already have an example of their influence with the concept of “virtual asset service provider”, first introduced and defined by the FATF in 2019. In just a few years, VASP has been adopted as a fundamental classification in regulation cryptocurrencies, and has appeared in forms ranging from New York’s “Bitlicense” to “cryptoasset service provider” in MiCA.
Although the G20’s recent support for IMF and FSB Recommendations on cryptoasset regulation suggests intensifying interest at the multinational level, we have yet to see the kind of global coordination that was essential to achieving uniform rules after the 2009 financial crisis.
This is a significant opportunity for emerging regional power centers such as Dubai and Singapore, which rarely get the chance to operate at the top of the regulatory cascade. For these countries, thoughtful regulation can attract global talent, promote local economic growth, and capture market share in the digital economy from sclerotic superpowers.
And while multiple sources of law can create conflicting rules for the industry, it’s also an opportunity to collaborate and iterate across multiple forums.
Industry
The evolving regulatory landscape presents risks and opportunities for the digital assets sector. Providing blockchain products and services in full compliance with applicable laws – new and old – is probably one of the biggest opportunities.
In January 2022, Fireblocks partnered with a liquidity protocol called Aave to launch “Aave Arc,” designed as a bridge between businesses and smart contracts. The goal of the project was to address legitimate concerns regarding sanctions and anti-money laundering from legal and compliance departments. The product itself was designed as a closed protocol deployment with limited access to businesses that have undergone KYC and exceeded minimum standards.
Arc was not a commercial success. Yet he had a most remarkable afterlife.
At the top of the cascade, the Monetary Authority of Singapore adopted the idea as part of its Project Guardian sandbox, where they are testing the viability of “trust anchors” as starting points for smart contracts, potentially forming the basis for new regulation.
At the bottom of the waterfall, identity verification has evolved further, with massive industry investment in new on-chain “passport” solutions secured by zero-knowledge encryption. These products will create new business opportunities for businesses and individuals to participate in the digital economy in full compliance with applicable law, which could enable future collaboration with regulators.
Is it morally right to ensure that blockchains are not used to fund terrorists and help criminals launder money? Yes of course.
But the reason I’m confident this will happen on a large scale is because it’s lucrative. More importantly, this is the essential next step in pushing crypto to the tipping point.
The tipping point
“We are meeting in the midst of a crucial transition from crisis to recovery to turn the page on an era of irresponsibility and adopt a set of policies, regulations and reforms to meet the needs of the global economy. 21st century. » This statement, part of the G20 response to the 2008 financial crisis, is even more relevant to the paradigm shift underway in crypto markets today.
As disastrous as the financial markets appeared at the time, their recovery was total and global. Crypto is also heading towards its next phase.
Crypto coroners, check the pulse.
This article does not necessarily reflect the views of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author information
Jason Allegrante is the Director of Legal and Compliance at Fireblocks, where he advises on a wide range of digital asset matters.
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