Biden administration urges regulation on stablecoins
For some time, we have discussed potential stablecoin regulation, and the impact it could have on the broader crypto market. Stablecoins are essential for the crypto market as they serve as the cogwheels in decentralized applications and the overall liquidity of the market due to the most liquid pairs being quoted in stablecoins. The market capitalization of stablecoins having grown by around 4.5 times year-to-date reaching $134bn catching the attention of regulators. Last week the highly anticipated report on stablecoins by the Biden administration’s President’s Working Group (PWG) was released. The report itself was fairly positive on the role stablecoins can play in society going forward by supporting faster, more efficient, and more inclusive payment options, as described by the report. Somewhat surprisingly, the report moreover described decentralized finance (DeFi) thoroughly, and how stablecoins act as an essential part of the growing market of decentralized applications.
Not only have stablecoins caught the attention of regulators but also decentralized finance, emphasizing that we will likely see further attention on decentralized finance going forward, which can highly influence the market. On a final note, the report shortly mentioned Dai, a fully decentralized stablecoins, backed upon other cryptocurrencies. The interesting matter concerning Dai is that regulators are substantially more constrained on regulation as Dai is fully backed decentralized, not by holding fiat in a bank account such as the largest stablecoins issuers Tether and USDC do. The recommendations of the report only applies to Tether, USDC, and other fiat-redeemable stablecoins. By what means regulators intend to regulate fully decentralized stablecoins such as Dai remains uncertain.
In regards to fiat-redeemable stablecoins, the report urged the Congress to promptly comprehensively regulate those as “the absence of appropriate oversight presents risks to users and the broader system”, as pointed out by Secretary of the Treasury Janet L. Yellen. Most notably, the report recommends that stablecoins issuance is limited to solely banks. By limiting it to banks, the issuance will to some degree be covered by the traditional regulatory framework, effectively giving respective US government agencies greater jurisdiction over the issuance. Both Tether and USDC were rather positive on the recommendation as it essentially gives regulatory clarity. The latter has recently stated that it intends to become a full-reserve national commercial bank. The first mentioned Tether has multiple times been in a negative spotlight of regulators, recently being fined $41mn by the Commodity Futures Trading Commission (CFTC).
Banks are embracing crypto
During the past year, we have witnessed several large banks such as JPMorgan Chase, Goldman Sachs, BNY Mellon, and Morgan Stanley making their entry into the crypto market with various crypto-related offerings. Last week, Thailand’s oldest and largest bank by market capitalization, Siam Commercial Bank, joined the aforementioned banks by announcing its intention to acquire a 51% stake in Thailand-based crypto exchange Bitkub. The acquisition comes with a price tag of THB 17.85bn, or roughly $536.7mn. Bitkub is one of the largest exchanges in Thailand. It is one of the few exchanges in the country operating with regulatory approval. The bank’s chief executive officer, Arthid Nanthawithaya, said the acquisition will help the bank enter a “new competitive arena that will emerge very quickly in the next three to five years.” The acquisition is subject to approval from the Thai Securities and Exchange Commission and the country’s central bank.
Australia’s largest bank, CommonWealth Bank of Australia, also announced last week its intention to let clients trade cryptocurrencies through its app. It is the first major bank in Australia to enable clients to trade cryptocurrencies, which include Bitcoin, Ethereum, and Litecoin. The bank intends to launch the product broadly to clients during 2022.
A race to get paid in BitcoinRegulation and banks aside, some US mayors have said in the public race that they will receive their salary in Bitcoin to virtually promote their cities as crypto advocates. First, the long-time crypto advocate Francis Suarez, serving as Miami’s mayor, stated that he will take his next paycheck in Bitcoin. Following in his footsteps, the newly-elected mayor of New York City Eric Adams announced that he will be paid entirely in Bitcoin for his first three paychecks with the following statement: “NYC is going to be the center of the cryptocurrency…”. Eric Adams later stated that schools should teach students the topic of cryptocurrencies. To top it off, the mayor of Tampa in Florida Jane Castor announced on Friday that she is willing to accept a paycheck in Bitcoin.