Now that the US Securities and Exchange Commission has decided to regulate a range of widely traded digital coins as securities, and sued two of their largest trading venues for peddling them without first registering the tokens with the authority, there is a good chance that blockchain leadership may finally pass over to regulated banks.
The entire business model of cryptocurrencies is at risk of falling apart, and Wall Street firms couldn’t be any happier.
Now that the US Securities and Exchange Commission has decided to regulate a range of widely traded digital coins as securities, and sued two of their largest trading venues for peddling them without first registering the tokens with the authority, there is a good chance that blockchain leadership may finally pass over to regulated banks.
From the perspective of financial stability, a change of guard will be welcome. Crypto exchanges burst through a gap left unplugged by Satoshi Nakamoto. In his 2008 white paper, the pseudonymous founder of the Bitcoin network didn’t suggest an obvious way for people to swap their dollars and euros for decentralised currencies. Digital-asset bourses, which allowed people to do that and more, morphed into shadow banks, offering traders leverage of up to 125 times on their investment, while being sparsely regulated all along.
If crises of liquidity and solvency in the crypto industry haven’t yet threatened mainstream finance, that’s only because of their limited linkages. It’s only a matter of time, however, before the two get more closely intertwined. Some of that commingling may well happen outside the US. Even as the SEC was tightening the screws, a Hong Kong lawmaker took to Twitter to invite virtual-asset trading operators to come to the city, which pushed ahead with a new regulatory regime on June 1. Hong Kong’s crypto-hub ambitions have Beijing’s quiet backing
Ultimately, though, the thinking in Washington will prevail, as no financial center of repute will want to risk its stability for the sake of additional business. And the regulatory mood in the US is pretty clear. While Ripple Labs Inc and its top executives were accused by the SEC in late 2020 of selling XRP tokens without registering them, it was Sam Bankman-Fried’s FTX, the most spectacular of last year’s crypto debacles, that made a major crackdown inevitable. It arrived this month with the SEC suing Binance Holdings Ltd and Coinbase Global Inc.