2023-03-28 15:43:41 ET
Equity research firm H.C. Wainwright & Co hosted a Key Opinion Leaders (KOL) event to explore ongoing regulatory uncertainty dominating the cryptocurrency news cycle in recent weeks. Included in the panel was Dapper Labs Chief Regulatory Officer Alex Levine and Co-Lead of Digital Assets at Promontory Financial Group Ray Strecker.
The two experts noted the lack of regulatory clarity in the US represents the biggest risk for investors. As a result, crypto companies are finding it more difficult to innovate, build, and launch new products in the US.
Below are some of the highlights from the event, as noted by H.C. Wainwright analyst Mike Colonnese in a note to clients.
The ideal regulatory framework
In an ideal world, digital assets should be re-categorized over time. For example, when a new project enters the fundraising stage, it could be considered a security and fall under the purview of the Securities and Exchange Commission.
If the token is then used to pay gas fees for a service it can be considered a commodity and be subject to CFTC rules. Falling under the right regulation in the US will “foster growth and innovation in the sector,” Colonnese wrote.
Choke Point 2.0?
Are we witnessing Operation Choke Point 2.0? According to the experts, Signature Bank was “not on the verge of failing” but was shuttered by regulators regardless. Coupled with the loss of Silvergate’s Exchange Network and Signature’s Signet, real-time payment networks supporting 24/7 settlements have faced challenges.
But the experts note that venture capital firms with exposure to crypto projects “have been using their clout” to push banks to work with their portfolio companies. Other regional and larger banks have stepped in to provide banking services to several crypto native companies.
Ripple legal case
Meanwhile, the SEC and its Chair Gary Gensler views nearly every crypto asset other than Bitcoin as a security, the analyst added:
The experts on the call argued that it is not reasonable to believe that everything in the digital assets space is, nor should everything be treated as, a security. The outcome of the ongoing Ripple case, and whether XRP is ruled as a security, could have significant implications for how similar tokens are viewed and classified going forward
Stablecoin legislation will pass
Among the multiple bills passing through the US Congress, stablecoin legislation is “the most likely to be passed,” according to the analyst. Most notably, USDC’s de-peg puts a lot of pressure on lawmakers to take action.
The experts note that 100% asset backing for stablecoins could be part of the rules while there is no support for algorithmic stablecoins. The analyst writes:
The money market fund industry could be a good model for how the stablecoin industry could be regulated. The consensus from lobbyists across the industry is that outside of stablecoin legislation, it is very unlikely that we will see any other legislation passed within this calendar year.
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