With Bitcoin crashing back to levels that bulls were hoping it would “moon” to last month and ether reaching new all-time highs, this week has made it hard to pay attention to news that sounds like one of those civics lessons you used to surreptitiously sleep or social media through.
However, the third week of the year will very likely prove to be its most significant for cryptocurrency innovators and investors.
Crypto scored a hat trick with news that President Joe Biden’s three top financial regulators—the chairmen of the Securities and Exchange Commission and the Commodity Futures Trading Commission, and the bank-overseeing Office of the Comptroller of the Currency—will all be intimately familiar with the cryptocurrency and blockchain business.
With MIT digital asset and blockchain professor Gary Gensler heading up the SEC, DC FinTech Week conference founder Chris Brummer reportedly leading the CFTC, and former Ripple advisory board member Michael Barr said to have been tapped to oversee banks as Comptroller of the Currency, the industry will certainly be getting the “regulatory clarity” it has been screaming for.
Clarity: Yes. Good? Maybe.
“Gensler is a blockchain veteran and his increased expertise should, optimistically, lead to clearer, consistent policy over the next few years,” said Josh Greenwald, who is chief risk officer as well as head of trading and fund management at digital money platform Uphold.
“We’re expecting a generally dovish, friendly regulatory environment,” Greenwald said in an email to Modern Consensus. But, he added a caveat:
“We expect some form of increased controls, especially as retail continues to get more engaged in these highly volatile markets.”
He’s not the only one with that opinion.
Excited that three “crypto-savvy individuals are likely to take the three most powerful financial regulator positions in America at the same time,” U.S. cryptocurrency exchange Kraken’s chief legal officer, Marco Santori, tweeted out some advice:
“Dear CEOs: Beef up those legal budgets.”
To which the Blockchain Association‘s Alex Allaire responded, “And beef up government relations budget as well.”
DeFi lender Celsius Network CEO Alex Mashinsky sounded an optimistic note, predicting that with Gensler, Brummer, and Barr in the saddle, the new administration will see its role differently than Jay Clayton did at the SEC and the more friendly Heath Tarbert at the CFTC.
“The new administration is not just the cop whose job it is to enforce the old regulation and slow down the financial trailblazers to protect the innocent investor,” Mashinsky said.
Instead, it will also focus on being “the lawmaker and patron who is here to help us reach financial independence and comfortable retirement,” he predicted.
What’s the distraction?
“It is great to have educated and experienced regulators in charge of the world’s largest financial markets,” Mashinsky told Modern Consensus via email. “Janet Yellen at Treasury, with all her prior experience at the Fed, makes this one of the strongest financial teams ever assembled.”
The real question, Mashinsky said, “is whether all this firepower will move America into the future of [central bank digital currencies] and crypto or will we be distracted with keeping the safety net under the U.S. economy?”
Either way, crypto’s role in the financial markets will keep growing, Greenwald predicted
“Mainstream acceptance is already happening,” he said. “The share of Americans holding Bitcoin continues to grow, now past 11%.”
That is “still well short of the 55% who hold equities, but that’s a margin that will continue to narrow,” Greenwald predicted. “Ethereum use likewise looks robust, with more active wallets and more users month over month.” He added:
“Regulators certainly see this uptick in adoption and the need to cooperate with the inevitability of this technology.”
As for specifics, Greenwald said he is optimistic that the new regulatory team will provide a clear roadmap to getting a bitcoin exchange traded fund (ETF) approved. That would come after years of being frustrated by Clayton’s concerns about market manipulation.
The first step has already happened, with investment manager VanEck reapplying for a bitcoin ETF on Dec. 30, just weeks before the new administration took over.
Greenwald said he had the same optimism that Gensler’s SEC would also provide clarity about what differentiates a token from a security—perhaps the biggest U.S. regulatory question crypto wants answered.
Certainly Ripple wants that, having been hit with an SEC lawsuit for illegally selling the XRP cryptocurrency, which it claims is an unregistered security.
That suit—which Ripple has said it will fight—was filed on Clayton’s last day at the SEC.
Greenwald said he also expected to see more clarity about the travel rule, which requires anyone sending more than $3,000 to a financial institution to provide detailed personal information.
That was the subject of another “midnight rule” by the previous administration. It tried to quickly shove through a requirement that crypto exchanges collect that know-your-customer (KYC) information from clients even when they transfer funds to their private cold wallets. That rule was halted by President Biden’s sweeping freeze of all new government rules.
Decentralized finance (DeFi) and privacy coins are other areas ripe for regulatory clarity that will likely take some time to get right, Greenwald predicted.