Recently the SEC issued a nearly 700-page plan that proposes re-defining Alternative Trading Systems (ATS). SEC commissioner Hester Peirce has called the plan “a Trojan Horse” aimed at driving out the crypto exchanges and decentralized finance communities. At the same time the White House is expected to issue a memorandum on crypto’s potential threat to the stability of financial Markets.
What on earth is the administration thinking? While there is no doubt that the crypto industry has been chaotic and requires regulation, the administration’s policy is short-sighted, seeking to kill a nascent industry that has the potential to make the U.S. into a major trading hub, along with the employment and related services that accompany it. On the other hand, a smart crypto infrastructure based on the blockchain could ultimately streamline our existing financial systems, making them cheaper, more secure, and more equitable.
An Overreaction That Deprives U.S. of Market Role
The SEC’s Trojan Horse proposal is a direct and obvious existential threat to the crypto industry in this country. First, it kills the exchange business completely, then it attacks other elements of the business. The agency’s ham-fisted efforts will force even more of the domestic crypto service industry out of the US and into regions where they can operate under more sensible regulation (i.e., most of the rest of the world). They are doing the exact opposite of what they should be doing.
The SEC, if allowed to succeed, will have put the final nail in the coffin of the US crypto industry, and will suffocate innovation in the space. In addition to causing countless thousands of domestic job losses in local crypto exchanges, as well as all the infrastructure and support systems that maintain crypto, they will have – yet again — alienated countless retail and institutional investors. The SEC needs to be reminded that fully 20% of the US adult population, at least, is currently exposed to crypto in some form.
What’s the alternate vision?
Rather than throwing out the baby with the bathwater the government should be, as Sam Bankman-Fried of FTX testified, working to bring more of the crypto industry back onshore in the US, and making it easier to trade crypto assets here. He points out that currently 95% of crypto trading volume occurs offshore and urges greater regulatory clarity to attract this business to the U.S.
The majority of crypto assets are not accessible at all from the United States. While a few US financial groups such as Blackrock, Mastercard, VISA and JP Morgan offer crypto-based financial products, most American cryptocurrency seekers are forced to invest through overseas mechanisms. This deprives US financial service providers of revenue, and creates a situation where the few US crypto exchanges charge usurious fees for market access. Why can’t we encourage growth by bringing that liquidity and that business back on shore?
By establishing thriving but regulated crypto financial centers in the US, the government could reap the benefits of modest taxation on crypto gains while encouraging crypto and fiat spending through blockchain-based, DeFi payment systems that slash high transaction fees and reduce fraud risk. These hubs could exist alongside legacy payment systems as consumers do what they do best – compare pricing and efficiency of the two systems.
Demand is mounting. As a former investment banker developing a merchant platform that enables instant and inexpensive crypto-to-fiat transactions, I have already received inquiries from large organizations seeking to offer crypto payment capability to their customers.
Taking the Next Steps
The Biden administration must reign in the SEC and its chief before things get any worse. The SEC’s recent conduct is as sneaky and dishonest as it is scandalous. Without clear direction from the White House we risk cutting off our nose to spite our face. We urgently need to see President Biden’s proposed executive order that purports to bring greater regulatory clarity. If he truly has U.S. financial interests at heart he will give significantly more power over the crypto industry to the CFTC and the banking regulators to help grow our economy.