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Wednesday, November 10, 2021
A lot for regulators to chew on, but for crypto the same old menu may not do
On Tuesday, Yahoo Finance joined Decrypt in an effort to spotlight all the ways in which cryptocurrency is now going mainstream. And there are no shortage of headlines trumpeting the ways in which digital coins are capturing the public’s imagination.
Spot and futures-based exchange-traded funds (ETFs) are shaping up to be the next hot thing. And decentralized finance (DeFi) and digital wallets are drawing in legions of small investors, which is drawing out regulators like the Securities and Exchange Commission (SEC).
So as new products like ETFs blossom and the blockchain mints new digital coins (Morgan Stanley recently pegged the crypto universe at around 10,000), which agency is best positioned to serve as the sheriff of what SEC Chair Gary Gensler calls the “Wild West” of financial markets? Should regulators graft decades-old securities laws onto a nascent, technologically advanced sector that’s being championed as nothing less than a financial revolution?
As the regulatory debate takes shape, there’s at least some credence to an argument made by Ripple executive Asheesh Birla to Yahoo Finance’s Jennifer Schonberger on Tuesday. Birla said clearer regulations would bolster the industry’s growth, but warned that the desultory application of outdated laws could harm innovation.
“I’m not advocating taking old regulation and peanut butter spreading it over cryptocurrency,” he said. “We are advocating for clear regs that are modernized for what blockchain and cryptocurrencies can do and so far it hasn’t been clear.”
That theme is particularly resonant, given that Congress is currently weighing a full slate of blockchain-related proposals like oversight of crypto miners that may act as brokers, stablecoin issuance and institutions (DeFi) that lend like traditional banks.
"Is regulation a help or a hindrance?" Morgan Stanley analysts asked in recent research.
"It depends on the form of the regulation, assuming it is similar to what is currently being discussed in the developed economies, defined regulation may increase the attractiveness of adding cryptocurrency exposure to portfolios for institutional investors," the bank noted.
And as more ETFs come to market, expect the debate over regulation to take center stage. Grayscale CEO Michael Sonnenshein told Yahoo Finance’s Brian Cheung on Tuesday that products based on derivatives or real-time prices “has become a bit of a political issue.”
He added: “In the last week, we’ve actually seen bipartisan support for a bitcoin spot ETF... advocating for this and ensuring there’s a level playing field amongst these applications out there, and investors really do have the optionality.”
The more sophisticated the market grows, the more that critics will clamor for rigorous investor protections. And that means more questions will surface about whether the existing securities architecture is suited for this imposing new digital edifice called cryptocurrency.
Yahoo Finance Highlights