Rule makers around the world are finally catching up with crypto.
China's Central Banks Crackdown on Cryptos.
Calling all crypto related activities illegal.
The government of India could soon introduce a bill to ban cryptocurrencies.
The EU parliament has agreed on new anti anti-money laundering rules to regulate cryptocurrencies.
Now, not all of these new rules are bad.
There are things happening in places like Singapore and Dubai, for instance, that are
making things much easier for Web three companies to operate.
But the elephant in the room is the US.
The US financial regulator is out with their policy agenda for how to regulate cryptocurrencies.
The so called crypto sprint, as regulators are calling it sketches out to do list for
2022.
There's more crypto being used here, more companies operating here, and possibly more
Americans working in Web3 than anywhere else in the world.
The US is probably going to be the most important place where rules on crypto are being made,
so the power struggle over who makes those rules is critical.
The head of the Securities and Exchange Commission, Gary Gensler, has made repeated references
in rulings just this year to various digital assets as securities.
And perhaps more critically, there's been several bills proposed in Congress this year
as well.
The big one is the Loomis Gillibrand proposal that aims to classify decentralized assets
as commodities and have the Commodity Futures Trading Commission, the CFTC, regulate them,
not the SEC.
There's also Senator Toomey's Stablecoin framework and a digital commodities bill which was proposed
in August.
Now, not a lot has happened on these bills in terms of progress, and we'll get to why
that is in just a second.
But there's very much a consensus that rules need to be made right now.
The Treasury Department has said that unregulated cryptocurrencies could pose a risk to the
financial system of the whole country.
And in the aftermath of the Terra Luna collapse, the Federal Reserve Bank of New York has warned
that even Stablecoins are also a risk.
What's clear is that those in charge are concerned about what's happening in crypto and they
want to make rules protecting consumers and economies.
And here's the rub.
How do we implement protections without stifling innovation?
Everyone agrees we need to get this right first time around.
The volatility that we've seen in crypto markets this year has prompted some like Fed Vice
Chair for Supervision Michael Barr, to make precisely this point.
The problem right now is that things have been paused because of the midterm elections.
So what's next?
Well, earlier we spoke to Ben Emmons of Medley Advisors who said that while who takes power
in the Senate will be important in November, ultimately, both sides of the political aisle
want action on crypto.
It depends how to shift the explosion house in the Senate.
But I our view is that there is going to be a shift to the Republicans majority in the
House, but a slim majority, whereas the Democrats are likely to hold the Senate.
So you're getting this really challenge position for all of this regulation, I think because
there's not like a lot of bipartisan agreement on what is the right regulation for crypto.
There's a divide between the different parties about what to do.
But I will say we notice from from people that we talked to is that it's just really
high on the agenda, though.
There's a lot of concern about stablecoins and there's a lot of concern about obviously
frauds with crypto.
There's also a lot of worry about that.
Now, China is planning to have its Yuan Yuan launched, right.
And making an accelerated effort that the EU one could become the global digital currency
and that that is a worry in terms of more like potentially geopolitical outcomes from
that.
The problem for those of us waiting for these rules to be made is that they no longer seem
to be a priority for all the politicians.
Other things will have priority.
You know, dials.
There's a lot going on with with, for example, relaxing regulation around oil or oil drilling.
Oil rich and drilling because of the energy crisis.
Clearly, there's other social issues at stake.
Right.
Abortion laws, for example.
So I think it's all those issues that play a big role in the 2024 election.
I don't think that that there is readiness to move forward, but there is a lot of willingness
to move forward.
I think even at the Federal Reserve, they very much are in favor of of switching over
to to a fully integrated digital payment system.
But they know the the shortcomings of of how this is taking place globally now.
Right.
The scale of fraud is so enormous then the geopolitical aspect of it that is in it could
be.
Used for espionage.
It could be used for weapon payments to Russia, for example.
All those things play a role, and I think the US wants to be really clear and sure that
the system really works.
So that's where we stand on rule making.
The other thing that we need to talk about is the digital dollar.
Now, the Fed's Loretta Mester has said that while a central bank digital currency, a CBDC,
is being evaluated, no decision on how to proceed has yet been made.
Meanwhile, countries that have banned or considered bans on crypto, places like India and China
are pushing ahead strongly on CBDCs.
Check out our recent video on the E-Rupee.
For more on what's happening in India, for example.
By contrast, the Fed seems cautious, and Emmons reckons it's the structure of currency in
general in the US that is ultimately holding it back.
They feel that that the financial system, as it is currently is just not ready yet to
make a switchover quickly to a fully digital currency system.
And that has a lot to do with how the reserve system in the United States works, right?
It's a fractional reserve system Federal Reserve, Federal home loan banks, commercial banks,
and don't charter banks and credit unions and foreign banks and you name it.
That's what there's a fair bit of different layers there.
And no requiring some of the operational testing of of the system to be able to handle massive
volumes of of payment traffic in digital currency.
Really, the worry on the Hill has been that the EU one could be a threat to the dollar.
Ultimately, you know, and the dollar is still really concerned.
Consider it in the political circles here like that.
That is the beacon for the United States, right?
If the dollar is strong, strong US economy, dollar dominance, lots of dollar debt issuance
out of dependance on dollars, not good if you if you have that change.
Right for that reason.
But from a Federal Reserve point of view, an E-dollar or the what it is currently doesn't
actually make any difference for that policy.
It would still be the same type policy.
So the yuan is more looked at it from a geopolitical point of view.
So is the US going to be left behind?
Having then a country like India also coming around right and being close to launching
it?
You do have two major superpowers up against the United States and yes, they are worried
that there is basically a new payment system globally.
They're going to start circulating e ones in e rupees.
And as a result, you do they do move away from using the dollar and the dollar then
loses ground.
It will not be necessarily depreciated value.
So I think that's separate, but it will be more it will be less used in transactional
value as in the global payment system will move away from the traditional dollar payments
and go, let's say largely over into this E-Yuan/E-Rupee system.
Our thanks to Ben Evans for his insights there.
If you think the US is going to be the most important place for making rules or indeed
if you think a digital dollar needs to happen sooner rather than later, let us know in the
comments below.
What are the big concerns on regulation for blockchain firms?
Midterm delays, power struggles among regulators are just some of the issues companies are
trying to get their head around.
More insight has come from the more than 100 page report released by the Financial Stability
Oversight Council.
So let's find out what to make of all that with Kristen Smith.
She's executive director at the Blockchain Association.
Kristen, lots of reaction to this report from the likes of SEC Chair Gary Gensler, Fed chair
Janet Yellen.
What's your take?
Over the past six or seven months in the United States, the federal agencies across the government,
including the EP, SOC, the Financial Stability Oversight Council, have been doing reports
looking at different parts of the crypto ecosystem and making recommendations on any policy gaps
that that may exist.
And, you know, it's been a little bit of unfortunate timing because there were the bad market events
over the summer with Terra Luna and the bankruptcies of a couple of companies.
But I think the good news is right now is that policy is kind of on one of two tracks.
It's there's a lot of legislation that's being considered in Congress to fill in those holes.
And there's also a lot of litigation going on.
So companies are pushing back against different enforcement actions.
And the reason these two things are happening is because the federal agencies have have
already sort of applied whatever existing authorities they have to crypto.
So we've gotten past the stage where agencies, federal agencies can act unilaterally.
And what's happening now is if they're overstepping their bounds, then it plays out in the courts.
But really what we need is Congress to come in.
It certainly chimes with this idea of trying to apply old systems to something new, something
that covers so many different parts of different sectors as well.
Now, there's a lot to talk about in terms of how we're defining cryptocurrencies.
Are they securities?
Are they commodities?
Who regulates what?
How likely is it, do you think, that one regulator is going to end up governing everything in
crypto?
So the reason that this has been, I think such a debate is that if an asset is deemed
a security, there's a tremendous amount of regulation, both of the markets, but also
disclosures that are required of around that asset.
If it's a commodity, there's no regulation, right.
And there's no sort of uniform disclosures about the risks of those assets.
What we have going on right now is there's legislation in Congress that would actually
grant the CFTC the authority to regulate the crypto spot markets like the digital commodity
spot markets.
And I think by having that in place, then that question of what's the security or commodity
is less intense.
It's my opinion that most of the tokens that trade in the United States on exchanges today
are probably commodities and not securities, because the securities laws, they really just
don't make sense when we're dealing with networks, right?
The information around what makes a token valuable is derived from the network, not
not a group of developers and the financial health of their entity.
Right?
It's about the network.
And so I think that the CFTC is likely going to be the home.
I think it takes legislation to do that because they don't have the authority to regulate
spot markets today.
Just futures markets.
Now talking about how firms are also dealing with this regulatory uncertainty, legal uncertainty,
especially when it comes to how structures work.
The whole Oakdale situation really seems to have thrown a spanner in the works, doesn't
it?
This is a huge issue, like - DAOs don't have legal status, right?.
Nobody knows what what they are.
And if they're deemed to be just an unincorporated company, essentially, then there is a bunch
of regulation that applies.
What's interesting about this CFTC case against BZeroX and OokiDAO is that they they're holding
the governance tokens liable for the activities of the DAO and saying that the DAO needs to
register with the CFTC and they're servicing all of these individuals through posting on
on one of their websites.
It's hard to blame the CFTC because they don't have any other tools in this instance other
than to use an enforcement action.
What we need Congress to come in and do is provide a framework to figure out how to go
about doing this type of regulation and the flexibility to exclude certain elements of
that regulation from either individual software developers or governance token holders or
DAOs, because the risks there are probably different than you would have with.
A centralized entity.
Good news is the crypto community and the industry is very engaged in Washington, and
I think they're being very reasonable about the fact that there is some new regulation
that's needed.
I think we're on a good path that all of this is going to settle out and we're not in a
place where crypto is going to go away or it's being threatened or crushed.
We're having productive conversations, and I think that's going to lead to good policy
outcomes.
All right.
That was Kristin Smith from the Blockchain Association talking to us there.
You can get even more insights on the latest developments in blockchain at the FIL Lisbon
summit - that is running from October the 30th to November 4th.
All right.
That's it for this video.
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