The Impact of National Policies on Global Crypto Markets

At the panel titled " The Impact of National Policies on Global Crypto Markets" on 19 September 2023 at TOKEN2049 Singapore, the panel consisting of Haslinda Amin, Anchor of Bloomberg TV who is moderating; Anthony Scaramucci, Founder and Managing Partner of SkyBridge Capital; Richard Teng, CEO of Binance; Jeremy Allaire, Co-Founder, Chairman, and CEO of Circle; and Mike Belshe, Co-Founder and CEO of BitGo; touches on enforcement on crypto regulations, the current crypto market, and the upcoming US elections as well as the candidates.

FTX Collapse Was the Catalyst for Stringent Enforcements on Crypto

The conversation has shifted to regulations, especially in light of the rapid growth of cryptocurrencies and the collapse of FTX, which triggered heightened scrutiny from regulators.

The crypto sector is still in its infancy, and the future of its growth will be largely determined by the policies put in place.

Effective regulation is essential, but where do we currently stand?

In the US, efforts to establish a regulatory framework made progress until 2023, when they stalled.

Meanwhile, the Securities and Exchange Commission (SEC) has intensified its enforcement actions.

Some view this as an overreach, but the reasoning behind it is clear.

Scaramucci elaborated:

“…what really happened is that, Sam Bankman Fried and his parents met many times with Gary Gensler. They met many times with Elizabeth Warren and, Professor Warren, which was at Harvard Law School, was very close to Sam's parents. And so, he was very close to getting … approval inside the United States before the fraud was uncovered. And so, when that exploded, Gensler and Warren made a decision to go very hard at the industry to eclipse the potential media fallout that they would have had as a result of being that close to FTX.”

This aggressive regulatory approach has had broader political implications, particularly for younger Democratic leaders, as the SEC's actions have negatively impacted the industry.

Interestingly, while former President Donald Trump has his critics, some commend him for recognising the importance of the cryptocurrency industry to the US economy.

He added:

“…whatever my feelings are about President Trump, I applaud him for understanding how important this industry is for the United States, and I think ironically. He's pulling the Democrats along into a centrist position on regulation, but that that's really what happened. That's how we got to where we are, and, hopefully, we're coming out of it now. This dark age of cryptocurrency regulation is hopefully ended.”

Europe Triumphs US in Terms of More Comprehensive Regulatory Framework

The cryptocurrency industry is undeniably plagued by fraud and abuse, and it is clear that action is needed to address these issues.

Allaire explained that there is broad agreement across the board on the necessity of rules that ensure investor protections, disclosures, market surveillance, and proper conduct.

No one disputes the need for regulations to combat fraud and criminal behaviour.

However, the challenge lies in the complexity of crafting these rules.

For years, industry leaders have called for policymakers to thoroughly understand digital assets, define their classifications, and establish appropriate regulatory frameworks.

This involves differentiating digital assets, utility tokens, commodities, and securities, then determining the best supervisory structures for each category.

While progress has been made in Congress, the fallout from the SBF scandal temporarily derailed those efforts.

Yet, bipartisan momentum remains strong, and there is a consensus that regulation by enforcement has been harmful, not constructive.

Other regions, like the European Union (EU), have moved ahead by creating a comprehensive, 600-page legislative text accompanied by detailed supervisory frameworks, setting the pace for global compliance.

He detailed:

“Europe is out pacing the United States, they've done the work, so United States need to do the work, that is really my view. And, by the way, I think, that work will get done irrespective of who wins the presidential election, because that is work that members in the senate, in the house, democrats, republicans, are jointly focused on getting done. There may be different flavors, to what that end product looks like, but at the end of the day I think that work gets done, it's a priority for congress, and, you know, we've seen, leadership on both sides say this is gonna be top of the list in the new congress for them to get done.”

Belshe concurred that the points Allaire raised are valid—doing the necessary work is crucial.

While the word "regulation" may seem small, it encompasses a vast range of considerations across different areas.

Many of the frameworks in place, particularly in the US, stem from laws enacted in 1933 and 1940.

These have evolved over time but have not faced anything as transformative as digital assets until now.

It is important to break things down.

Fraud, for instance, is a clear-cut criminal issue.

Persistent bad actors will always surface, regardless of the market—digital or traditional.

In contrast, law enforcement tasks such as transaction monitoring and sanctions are areas where digital technologies excel.

We now have tools far more advanced than those available when older systems were built decades ago.

However, the "do the work" aspect that Allaire highlighted is most critical in the context of market structure.

The US has made almost no progress in defining the proper market structure for crypto.

The distinction between isolated bad actors and broader market failures, like FTX's collapse, is vital.

Without clear separation between exchanges, brokers, clearinghouses, and custodians, the market remains vulnerable to large-scale failures.

He noted:

“So, anyway, I think the do-the-work part is the heavy lifting. And unfortunately, a lot of legislators or regulators are having to go back and kinda relearn. Wait a minute. Why is it the way it is? And then what's different about this industry and how it would I apply it?”

Harmonisation of Policies on a Global Scale

Binance has been heavily involved in navigating regulatory landscapes worldwide, having invested millions into building a solid regulatory framework.

Teng noted that the SEC's approach to regulation is just one facet of a broader global conversation, with similar discussions gaining momentum across regions like Latin America, Asia-Pacific, and Europe.

This reflects the growing recognition that cryptocurrency, alongside AI, will shape the infrastructure of various industries in the future.

The key question is how to foster this sector, and approaches differ by country.

In the US, the regulatory environment is particularly complex, with multiple agencies—each viewing crypto through its own lens.

For instance, one agency may classify a crypto asset as a security, while another sees it as a commodity.

This contrasts with countries like Singapore, where a single central bank regulates the space, classifying cryptocurrencies as digital payment tokens.

For Binance, the challenge is adapting to this fragmented landscape.

As the most licensed exchange globally, Binance has secured regulatory approvals in 19 jurisdictions, including India, Indonesia, Kazakhstan, Dubai, and Thailand.

The task is to work closely with policymakers and regulatory bodies to understand their unique agendas while operationalizing within local frameworks.

Teng hoped:

“what we really hope is, hopefully, over time, to see greater harmonization of those standards globally.”

Crypto & the Upcoming US Presidential Election

The US election has sparked significant debate over the future of cryptocurrency regulation, especially regarding what policies might emerge under potential leadership from Vice President Harris.

There remains uncertainty about the specific crypto policies she would endorse, but efforts are underway to shape a more favourable stance within the Democratic Party.

A group of cryptocurrency advocates, including prominent figures such as Mike Novogratz and Mark Cuban, is actively working with Vice President Harris to distance the party from the more stringent regulatory approaches of figures like Elizabeth Warren and Gary Gensler.

Progress appears to be moving in a positive direction, with expectations of greater clarity in the next congressional session.

Key issues such as stablecoin regulation and a fair framework for the broader crypto industry are anticipated to receive legislative attention.

However, there is a recognised risk that if one political side, particularly led by a polarising figure like Trump, dominates the conversation, it could trigger widespread opposition.

Advocates are working diligently to ensure balanced and bipartisan support for cryptocurrency regulation, seeking to prevent potential backlash against the industry's future growth.

Traditionally, business and politics have maintained a distinct separation, yet the current landscape reveals an intricate intertwining of the two, particularly within the cryptocurrency sector.

In the US, presidential authority significantly influences regulatory agencies through appointed leaders, underscoring the executive branch's considerable power.

While figures like Gary Gensler at the SEC are often spotlighted, other entities such as the OCC and FDIC play crucial roles behind the scenes.

Looking ahead, the differing approaches of political figures could shape the regulatory environment for cryptocurrencies.

The Trump administration has been vocal about its pro-crypto stance, while Vice President Harris remains less defined in her policies.

Although President Biden's intentions seem clear in maintaining the existing regulatory framework, Harris has yet to clarify her position, leaving some uncertainty in her potential approach to crypto.

It is important to recognise that, while cryptocurrency is an increasingly pivotal issue, it is not yet the sole focus of the political discourse.

Harris's relatively late entry into the nomination process suggests she may need additional time to formulate her stance on cryptocurrency.

In contrast, Trump has consistently expressed his support for the sector.

However, technology operates independently of political affiliations.

Technological advancements, particularly in cryptocurrency, continue to progress regardless of who holds political power.

As innovations deliver tangible benefits to society—enhancing transportation options, for example—policies inevitably adapt to these changes.

The progress made in crypto technology, including asset classes and stablecoin utilities, signals a potential mainstream acceptance that policymakers cannot ignore.

After the fallout from FTX, there was a hope that stringent measures could suppress the industry; however, the resilience and continued advancement of cryptocurrency technology suggest otherwise.

Ultimately, the trajectory of cryptocurrency will not hinge on the outcomes of elections but on the ongoing innovations within the field.

As history shows, policy will adapt in response to technological evolution, and this trend will likely continue in the realm of cryptocurrency.

Regulations Need to be Accelerated

Momentum is building in the cryptocurrency sector, with millions of individuals investing in this transformative technology.

However, this growth brings challenges that necessitate an accelerated approach to regulation.

The ongoing conversation about regulatory frameworks raises critical questions: Why is regulation still playing catch-up? What obstacles remain, and are the right voices guiding these discussions?

A notable trend emerges in voting patterns across demographics.

Older voters, particularly those over 70, frequently oppose progressive measures, while younger voters, especially under 50 and predominantly from the Democratic Party, are more supportive of cryptocurrency initiatives.

This generational divide highlights a pivotal moment in democracy, where younger constituents are urging their elders to adapt and facilitate an environment that works for all.

When industry leaders genuinely seek to protect consumers, one must wonder why regulatory bodies often approach them with scepticism.

Reflecting on the origins of the SEC, Franklin Roosevelt emphasized collaboration with the industry to identify bad actors and enact protective measures.

In the US, the regulatory landscape is complicated by a multitude of agencies, including the CFTC, SEC, FDIC, OCC, and the Federal Reserve, along with state regulators.

This "alphabet soup" results in a fragmented approach, where internal conflicts among agencies complicate the regulatory process.

The historical evolution of this infrastructure, characterised by political infighting and competing agendas, creates significant challenges for effective oversight.

Despite these hurdles, the resilience of cryptocurrency and technology is undeniable.

The question now is whether the next four to eight years will facilitate constructive dialogues or continue to be mired in political divisions.

Moving beyond partisanship is crucial; achieving consensus will allow for a more unified approach to regulation, enabling the industry to advance and thrive.

Only by overcoming these barriers can the focus shift from political gamesmanship to meaningful progress in the regulatory landscape.

Tweaking Policies to Cater to Different Locale

Navigating the complexities of the local landscape is essential for successful deployment in the cryptocurrency sector.

Effective strategies require engaging three key stakeholder groups: policymakers and regulators, users within the jurisdiction, and industry partners.

Currently, there is 5 to 6% crypto adoption, but the pace is expected to accelerate significantly.

The regulatory environment varies widely across countries; for instance, Indonesia classifies cryptocurrencies as commodities, while Singapore designates them as digital payment tokens, and Japan offers its own distinct definitions.

This variation necessitates careful adaptation to local regulations, including operational setups, token listings, and permissible product features.

Such diversity complicates global deployment, as each jurisdiction presents unique challenges.

However, establishing common global standards could greatly benefit users by providing a minimum level of protection as they engage in the cryptocurrency space.

Achieving this goal hinges on the commitment of regulators to collaborate with industry leaders to develop effective frameworks.

The potential of this industry to transform transactions is profound—it promises to lower costs and reduce reliance on third-party verification, fundamentally reshaping how people interact economically.

To harness this potential, stakeholders must work diligently to prepare both the market and consumers for the impending changes.

The pressing question remains: how can we establish those essential protections and create a cohesive regulatory environment that supports innovation while safeguarding participants?

Ultimately, policy must align with the realities of technology, particularly in the realm of digital assets.

There is a pressing need for clear definitions of various digital tokens, distinguishing between categories such as non-fungible tokens (NFTs) and general-purpose digital commodities associated with power protocols and networks.

Understanding the nuances of capital formation is also crucial; projects that initially involve capital formation can evolve into generalized commodities over time.

Furthermore, digital tokens can serve multiple purposes—acting as rewards, incentives, compensation, and governance tools.

It is vital to acknowledge these diverse uses without attempting to force them into existing regulatory frameworks.

Effective legislation should aim to clarify these definitions, providing a structured pathway for the launch of digital tokens with fair disclosure.

This clarity would empower entrepreneurs, enabling them to harness the utility of these tokens to foster economic incentives, influence customer behaviour, and drive engagement in this innovative sector.

Currently, many aspiring entrepreneurs are deterred by fears of legal repercussions or federal scrutiny, which stifles creativity and growth.

Therefore, it is essential to develop a regulatory framework that accurately reflects the reality of digital assets rather than retrofitting outdated models that fail to accommodate technological advancements.

We are witnessing unprecedented progress in technology, law, and market infrastructure over the last decade or more.

The upcoming years are poised to drive extraordinary growth in this industry, offering immense potential for innovation and expansion.