Posted December 17, 2021
By Matt Insley
Crypto Regulation is Coming
By Chris Campbell
Editors Note: As digital currency increases in popularity, as does talk of government regulation. Today I invite you to take a closer look at the steps being taken right now in Congress. Chris Campbell has more...
Like it or not, regulation is coming for crypto.
And it’s been a big week on the regulatory front.
That’s why we’re going to break down everything you need to know today.
Ultimately, we believe regulation will be a good thing. It will provide much needed clarity on what companies can do here in the States. And it will push other countries to bring clarity, too.
Of course, there’s always the possibility that the U.S. pushes too hard and destroys the industry within its borders. (Other countries will surely be happy to reel in the slack.)
Last September, U.S. Senator Pat Toomey accused the SEC of adopting a strategy of “regulation-by-enforcement” rather than proactively providing “rules of the road to industry.” And this was only the first time the SEC — under the guidance of Gary Gensler — has been criticized for its approach to crypto regulations.
Crypto Goes to Congress
Recently, a number of crypto CEOs spoke to Congress about blockchain, Web3, DeFi, and more.
“2021,” said Congressman McHenry, “was the year of the cryptocurrency. More Americans than ever are taking notice of this transformational technology. DeFi, DAOs, NFTs, Web3… jargon that was really once just used on Crypto Twitter are quickly becoming part of the lexicon.”
He’s right. 2021 saw mass adoption of crypto in ways that was impossible in… say… 2017. (2022 will see even more. Get ready.)
Some, like Brad Sherman and Alexandria Ocasio-Cortez, aren’t enthused. AOC sees crypto as simply an expansion of the current system (an odd perspective). Sherman cited the fact that Facebook, which is within the United States’ jurisdiction, was forced to show up in court. But something like Tether isn’t really in the jurisdiction of the U.S… so how is the U.S. expected to reign them in?
The main concern at the Congressional hearing was: “How do we regulate this in such a way that the dollar remains king?”
Rep. Auchincloss (D-Mass.) asked one of the most top-of-mind questions: “Can you identify the single most important thing that Congress can do right now to regulate stablecoins in order to persist dollar dominance?”
The question was directed at Sam Bankman-Fried, owner of the mega crypto exchange FTX. Given FTX’s entire business runs on Tether — and FTX is probably Tether’s biggest user — his answer was interesting:
“The single biggest thing is just to ensure the reserves are what they say they are.”
Bankman-Fried recommends daily attestations and periodic third-party audits.
It’s a fascinating statement from him.
On the whole, Alameda Research, the holding company within which Bankman-Fried’s FTX cryptocurrency exchange exists, has minted billions of USDT over the years.
We have the receipts to prove it. (Anyone can look it up on the blockchain.)
Indeed, Tether poses systemic risk if it is overexposed to risky commercial paper or is a complete fraud, as some claim.
(Tether’s collapse could indeed cause a crash in the crypto markets… but I’m not in the camp that says it could “kill” crypto. If it ever happens, I’ll be the first to buy the dip.)
DeFi is “Shady”
Elsewhere, Elizabeth Warren had things to say about stablecoins and DeFi. While she makes some valid criticisms about Tether… some of them didn’t quite land as well as she thought.
“If Tether’s tokens were actually backed 1-to-1, it would be one of the fifty largest banks in the country. But we know that it is not. That’s because according to Tether’s own report, only about 10% of the assets backing its stablecoin are real dollars in the bank. 90% is something else. Not real dollars.”
The majority of Tether’s holdings are in commercial paper. The problem is what kind of commercial paper. It’s clear as mud. The big problem is we don’t know.
But, here’s the thing: Show me one bank that meets this criteria.
The difference between DeFi and the banks — Tether aside — is that DeFi's books are wide open. Anyone can vet them for themselves.
If only the incumbents were held to the same high standard Warren expects for DeFi. I would love for more transparency at the Fed and JPMorgan, for example.
But we digress.
One last thing about the congressional hearing…
This is a great video with BitFury CEO Brian Brooks that epitomizes where we’ve been… where we’re at… and where we’re going.
How, you might be wondering, will this affect crypto?
Nothing has changed.
In short, the long-term trend is still intact… and in fact, now that the conversation is out in the open, crypto looks better than ever.
That’s exactly why James Altucher and George Gilder held an Urgent Crypto Briefing this week from James’ home.
If you feel like you’ve “missed out” on crypto… you’re going to want to see this.
Until next time,