Progressive Policy Making on Digital Asset

You are reading Crypto Bit Bybit: A quick round-up of important opinions and updates in the crypto market that you don’t want to miss. 

Growing evidence suggests that more institutions are entering the digital asset market, which was previously dominated by crypto enthusiasts. The involvement of big players, in turn, brings with them greater market depth and raises general awareness of emerging markets backed by the nascent technology. Legislators around the world are also devoting more attention to crypto-related businesses and innovative activities.

The Direction of Crypto Regulation – Could Crypto Mom be in Charge?

Last week, President Donald Trump announced his intention to nominate Security and Exchange Commission Chairman Jay Clayton to the post of U.S. Attorney for the Southern District of New York. If the nomination is confirmed, one of the remaining SEC commissioners is likely to be appointed as acting chair until Clayton’s successor is confirmed. Based on seniority, the acting chair may well be Hester Peirce, nicknamed “Crypto Mom” for her progressive stance on tech innovations and crypto oversight. She has publicly dissented the SEC’s dismissal of a Bitcoin ETF application filed by the Winklevoss twins. If, and there is a huge if, the top U.S. financial regulator is headed by another industry-friendly face, it will become a significant turning point for crypto regulation, as witnessed by CFTC Chairman Heath Tarbert taking steps to bring in regulatory clarity, and Acting Comptroller Brian Brooks proposing Federal Payment Charter for crypto exchanges. 

NYDFS to Issue Conditional Licenses 

Another progressive sign is that the New York Department of Financial Services is considering to adopt a more lenient approach to financial regulation. The conditional license allows startups to partner with existing licensed entities to begin operations in New York. After five years of setting up hurdles for fintech startups to jump through, NYDFS  finally cuts red tape in the BitLicense regime and makes it much easier for companies to secure licenses. This may spur another wave of crypto product and service innovations in the world’s most robust financial center.

New Regulatory Regime in EU 

In contrast, the European Union is taking a firm position with respect to crypto innovation. The lead economist of the EU proposed, in a speech, that the European Union should seize the opportunity to become the key rule-maker for digital finance, and would use cryptocurrency as the first test case.  The new regulatory regime offers greater legal clarity and poses stricter requirements on “global stablecoin” projects such as Libra. The new regime is set to be unveiled later this year, but the attention it garners indicates that cryptocurrencies are gaining traction at the highest legislative level in one of the world’s principal economic blocs. 

The FED’s Report – Basket-Backed Stablecoins

Coincidentally, Federal researchers have recently published a paper on the potential of “basket-backed” stablecoin to improve consumer welfare in certain economic scenarios. Federal economists mobilize economic models to test for the demand of a stablecoin backed by a basket consisting of two currencies. The model proves that trade shocks will have short-term and long-term implications on both normative and expected exchange rate in the forex market. These fluctuations will likely push consumers to adopt more stable payment methods, hence increasing the demand for stablecoins. Fed researchers postulate that global stablecoins such as Libra may contribute to a substantial increase in consumer welfare. However, there is still a long way to go before they can ultimately dethrone sovereign currencies.