As if he didn’t have enough to do, Gary Gensler appeared before the European Parliament on September 1 to share his policy recommendations regarding regulation of crypto assets and other matters. While the SEC chairman made it clear that he was presenting his own views – not those of the committee – his (hypothetical) appearance necessarily raised questions.
Do some believe Gensler, considered by some to be America’s smartest crypto regulator, that cryptocurrency and blockchain policy should be coordinated globally? If so, can he make common cause with the Europeans – or do the US and the EU have different priorities? More generally, are globally coordinated regulation feasible, particularly in areas such as decentralized finance?
The questions didn’t end when The New York Times made cryptocurrency the main story in its Sunday, September 5 edition, noting that “the boom in companies offering crypto-loans and high-yield deposit accounts is crippling the banking industry and leaving regulators scrambling to catch up.”
All this begs the question: So the organizers?
“I think it is very important that the chair of the European Parliament’s Securities and Exchange Commission is in the midst of the recent surge in cryptocurrencies,” Pablo Agnese, a lecturer in the Department of Economics and Business Regulation at the International University of Catalonia in Barcelona, told Cointelegraph. Adding, “It’s not just them [i.e., regulators] They are playing catch-up, they are also trying to reach a political consensus, at least in the relationship between the United States and the European Union.”
Patrick Hansen, head of blockchain at Bitkom — an association of German companies in the digital economy — said Gensler was undoubtedly aware of the extent of the decentralization and globalization of the cryptocurrency community, as he told Cointelegraph, “With DeFi projects mainly out of the US and Europe, he probably wants to ensure compatibility the two regions on these issues in order to prevent regulatory arbitrage.”
heightened awareness
“I am not convinced that the recent high-level meetings between US regulators and their European counterparts represent a policy shift,” Jeffrey Goodell, research associate at University College London and deputy executive director of the UCL Center for Blockchain Technologies, told Cointelegraph. . he added:
“There is a growing realization on both sides of the Atlantic that digital currencies are here to stay and can present systemic risks, not only to investors looking for new sources of uncorrelated returns but also monetary sovereignty.”
In his remarks before the European Parliament’s Economic and Monetary Affairs Committee, Gensler noted that “the $2.1 trillion asset class is a truly global one. It has no limits or limits. It operates 24 hours a day, seven days a week.”
While he asserted that he was “technologically neutral”, Gensler emphasized that “I am not at all neutral to public policy.” He said that sound public policy entails protecting consumers, curbing illicit activity, and ensuring financial stability, adding, “For those who wish to encourage innovations in crypto, I would point out that financial innovations throughout history do not thrive far outside of policy frameworks.” the public “.
The United States and Europe: different concerns?
However, the regulatory coordination of cryptocurrencies requires some agreement on the goals. Do European policymakers have different priorities than Americans? For example, Europeans may be more concerned about the environmental damage caused by Bitcoin (BTC) mining while US policymakers can focus more on whether stablecoins are truly stable.
“Environmental damage is certainly a bigger concern in the EU, especially the EU Parliament,” where some political groups such as the Green Party want to ban proof-of-work consensus protocols, Hansen noted. As for stablecoins, most of them are denominated in US dollars, so it is understandable that this is a major concern of the US, he added, but it could become a concern for the European Union if all decentralized finance (DeFi) activity becomes denominated in US dollars.
Agnese sees the environmental issue as a form of disinformation — perhaps even a way to discredit the technology by its critics — and points to a Galaxy Digital report from May 2021 claiming that the Bitcoin network uses less than half the energy that each of the banks does. The system and the gold industry, “arguably our closest competitors if we think of cryptocurrencies as a potential medium of exchange,” he told Cointelegraph.
Certainly, though, policymakers in the United States and Europe share common interests with regard to cryptocurrencies, such as ensuring compliance with know-your-customer (KYC) and anti-money laundering (AML) procedures globally. “The most important short-term common ground should be regulatory standards for central cryptocurrency custodians, exchanges, brokers, etc. on KYC, anti-money laundering, tax, and consumer protection matters,” Hansen said.
Stablecoins are also a valid area of mutual concern in Agnese’s view, “since many of these cryptocurrencies, pegged to major currencies such as the US dollar, have not been audited or, when they are, have left many questions unanswered.”
In his September 1 remarks, Gensler noted that “nearly three-quarters of the trading on all cryptocurrency exchanges occurred between a stablecoin and some other token” in July, and suggested that stablecoins facilitate those seeking to avoid financial regulations, including Including anti-money laundering rules and penalties. Goodell noted that “European regulators are certainly aware of the counterparty risks inherent in stablecoins,” adding:
“When a private stablecoin issuer fails to deliver on its promise to maintain the peg, will the ECB bail out stablecoin holders? If the answer is definitely yes, the issuer is effectively doing central bank work by creating a central bank digital currency on its behalf. If The answer was probably no, stablecoins are not very stable and should be traded at a discount.”
Goodell disputed the notion that US regulators are necessarily behind the game on crypto assets. “I think the whole story is more accurate,” he told Cointelegraph, explaining that the largest digital asset exchanges settle their trades in US dollars, while the largest stablecoins are also pegged to the US dollar, “so it can be argued that the threat posed by cryptocurrencies to monetary sovereignty is less severe in the United States than in other countries.”
In addition, many large US financial institutions have a stake in the crypto space — that is, “stakeholders in the infrastructure and services that underpin digital assets — and regulators may prefer to be patient rather than upset the delicate balance,” he added.
Is coordination really required?
Ultimately, is a globally coordinated regulatory structure necessary for cryptocurrencies? Agnese urged a laissez-faire approach to crypto regulation – allowing technology to evolve and showing what it can do – adding:
“Money laundering, the environment, and the lack of serious scrutiny efforts are not unique to the blockchain ecosystem. It would be unfortunate to see a concerted response from major governments that would stifle innovation and impede the growth of this sector and thus deprive society as a whole of all the benefits to come.”
But the powers that be are not impatient. As the New York Times reported, “Senior officials from the Federal Reserve and other banking regulators have urgently started what they call a ‘cryptocurrency race’ to try to catch up with the rapid changes and figure out how to reduce potential risks from an emerging industry whose short history has marked as much high-risk speculation as it has progressed. technology”.
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For his part, Goodell was skeptical about the existence of a global crypto regulatory regime absent central bank digital currencies. “Globally coordinated regulation of digital assets will be difficult if not impossible,” he said, but with the right approach to government-issued digital currency, “we can mitigate the systemic risks associated with digital assets and may avoid the global consensus requirement.”
Meanwhile, Hansen told Cointelegraph that “ignoring a $2 trillion market that has been around for more than a decade is no longer an option. Regulatory frameworks for centralized crypto firms — exchanges, lenders, etc. — are very close,” although the measures Related to DeFi and possibly some other issues “are more complex and will require more discussions and time.”
