“Brace Yourselves, The ‘Crypto Winter’ is Coming,” was the title of my article published on June 6, just one day before the “Responsible Financial Innovation Act,” better known as the bipartisan crypto bill, was introduced in the US Senate.
Then, in my next story, I focused on September and October as the most critical months of the “crypto winter” in 2018. The next thing I know, Reuters just came up with the eye-catching headline G20 watchdog to propose the first global crypto rules in October.
This isn’t one of those I-told-you-so types of stories. I’m merely a humble observer who has been both blessed and cursed to live in the most interesting crypto-times in history, just like the rest of you. Yet, I have one legit question to ask:
Is the sudden crypto regulation “enthusiasm” on a global scale (!!) a helping hand of long-awaited and well-deserved recognition or conveniently timed arm-twisting to ensure full (centralized) control?
The Perfect Crypto Storms (Don’t) Call For The Global Crypto Norms
The crypto roller coaster ride is not for the faint of heart. That’s a fact. If you aren’t personally and literally invested in crypto, this way or another, then someone you know, statistically speaking, certainly is:
“One in six Americans have invested in crypto, according to Pew Research Center. But the crypto craze hasn't swept across societal society evenly. A recent NBC poll found that half of men in the United States between the ages of 18 and 49 have dabbled in crypto, the highest share of all demographic groups.”
I’m pretty much sure that these numbers more or less reflect the “crypto craze” all around the globe, not only in the US.
Now, feel free to correct me if I’m wrong, but I don’t exactly recall that the G20, a group of the 19 world's major economies plus the EU, was so crypto-curious, let alone expressing full attention in 2018, as it is in 2022.
The FSB or the Financial Stability Board, which is a group of regulators, central bankers, and treasury officials, so for acted as an extended arm, better to say an extra eye of the G20, to only monitor the cryptoverse. As long as the crypto sector didn’t become the “speculative” sector, and didn’t represent a “systemic risk” to add to the existing troubles of the “traditional” markets in turmoil, the FSB had no intention to “interfere.” However, the times have changed:
"The failure of a market player, in addition to imposing potentially large losses on investors and threatening market confidence arising from crystallisation of conduct risks, can also quickly transmit risks to other parts of the crypto-asset ecosystem," the FSB said in a statement.
The tricky part is that the FSB is powerless in the traditional lawmaker’s sense. However, you should know that the EU is the FSB’s leading member. As such, the EU has already committed to applying the new crypto market rules.
"Today we put order in the Wild West of crypto assets and set clear rules for a harmonised market," said Stefan Berger, a German centre-right lawmaker who led negotiations. "The recent fall in the value of digital currencies shows us how highly risky and speculative they are and that it is fundamental to act. Crypto-asset service providers will have to respect strong requirements to protect consumers' wallets and become liable in case they lose investors' crypto-assets."
The Markets in Crypto-Assets or MiCA with its set of the new rules are expected to come into force as early as 2024. But, not all “entities” of the European cryptoverse will be affected the same way. The stablecoin holders “will be offered a claim at any time and free of charge by the issuer, with all stablecoins supervised by the bloc's banking watchdog.” What does this even mean in plain English?
Robert Kopitsch, who is the secretary general of the Blockchain for Europe lobby group, including the major exchanges such as Crypto dot com and Binance, expressed some concerns that these rules were "a mixed bag” with the most serious consequence "that stablecoins will basically have no ways to be profitable."
And, that’s not all, the EU crypto folks!
The EU member state regulators “will be responsible for licensing crypto firms.” Plus, whenever the “large operators” are involved, they will have an additional obligation to inform the ESMA (The European Securities and Markets Authority). To simplify things and terminology, if the FSB is the G20 group’s watchdog, then the ESMA is the EU’s watchdog. Beware of the crypto watchdogs! And, make sure that all EU crypto companies “disclose information on their environmental and climate footprint.” Lovely. Isn’t it?
For Uncle Sam, Crypto Regulation Is Also (Not) Much of A Problem
So, according to the “Responsible Financial Innovation Act,” I’ve mentioned earlier, which agency is to be the US “equivalent” of the crypto watchdog?
“The measure would stipulate that the CFTC, not the Securities and Exchange Commission, play the primary role in regulating crypto products, most of which the senators said operate more like commodities than securities. The smaller CFTC is generally seen as a friendlier regulator for cryptocurrency, as the SEC has typically found that crypto products must adhere to a host of securities requirements.”
The CFTC or the Commodity Futures Trading Commission “will be authorized to collect fees from entities engaged in cash or spot digital asset activities to finance its additional regulatory responsibilities.” When you put it this way, you get a motivated small agency to “engage,” so it could ensure its own financial existence.
What about the time (date) for the crypto regulations? Well, it seems that Uncle Sam isn’t in a hurry.
"We expect this bill will be the starting point for debate next year regardless of which party controls the House or the Senate," wrote Jaret Seiberg, an analyst with Cowen Washington Research Group. In addition, one of the Senators (Kirsten Gillibrand, D-NY) who sponsored this bipartisan bill, [literally said](https://the Commodity Futures Trading Commission):
It takes a long time to build a regulatory framework for a new industry.
It’s not only time that’s the crypto regulation problem. “There are now 50 different crypto bills that have been introduced in Congress and there is only one that is bipartisan sponsored…”
That is quite a combination.
Yes, indeed, it is. You have 50+ crypto bills waiting in line, so it seems to me that “made in the EU” MiCA “scheduled” to be enforced as “early” in 2024 would have to wait for the US bills to join the crypto regulation party.
It’s more than just a pure coincidence that the crypto regulation initiatives across the Atlantic have the stablecoins as the first “item” on their to-do list:
“The new bill would require stablecoin issuers to maintain high-quality liquid assets equal to the value of all outstanding stablecoins, and public disclosures of those holdings.”
So, the first wave of crypto regulation will sweep the stablecoin shore, not the “traditional” crypto, such as Bitcoin. Why is that? I guess, that’s a question for another decentralized finance story.