Cryptocurrency regulators are lagging behind the blockchain industry

As if he wasn’t busy enough, Gary Gensler appeared in front of the European Parliament on September 1st to share his policy proposals on regulating crypto assets and other topics. While the chairman of the US Securities and Exchange Commission made it clear that he represents his own views – not those of the commission – his (virtual) appearance inevitably raises questions.

Does Gensler, considered by some to be America’s most crypto-savvy regulator, believe that cryptocurrency and blockchain policies need to be harmonized globally? If so, can it have something in common with the Europeans – or do the US and the European Union have different priorities? Are globally harmonized regulations possible, especially in areas such as decentralized financing?

The questions didn’t end when the New York Times made cryptocurrency the main story on its Sunday September 5th, commenting that “an explosion of crypto-loan companies and high-yield deposit accounts are disrupting the banking industry and disrupting regulators” . catch up. “

The question arises: Therefore, the governing bodies?

Pablo Agnese, Lecturer in the Faculty of Economics and Business Organizations at Universitat Internacional de Catalunya Barcelona, ​​told Cointelegraph: “I think the SEC director’s posting to the EU Parliament has been very recent amid the rise of cryptocurrencies encouraging. and added, “Not just them [i.e., regulators] They are also trying to catch up, at least in US-EU relations, to achieve a political consensus. “

Patrick Hansen, until recently the blockchain boss at Bitkom – an association of German companies in the digital economy – thinks that Gensler is well aware of the decentralized and global crypto community and that Europe might want to ensure that both regions are coordinated on these issues, to avoid price differences according to the regulations.

Increasing awareness

“I don’t think the recent high-level meetings between US regulators and their European counterparts represent a policy change,” Geoffrey Goodell, a research fellow at the University of California, Berkeley Blockchain Technology, told Cointelegraph. He added:

“There is growing awareness on both sides of the Atlantic that digital currencies will persist and potentially pose systemic risks, not just for investors looking for funding sources. New, independent gains, but also in the context of currency sovereignty.”

Speaking to the EU Parliament’s Economic and Monetary Affairs Committee, Gensler stated that “these $ 2.1 trillion in assets are truly global. It has no limits or limits. It operates 24 hours a day, seven days a week. “

While claiming he was “technology neutral,” Gensler emphasized, “I’m a neutral on public order”. Sound public policy, he added, includes protecting consumers, curbing illegal activity and ensuring financial stability. “

America and Europe: Different Concerns?

However, harmonizing crypto regulation requires some agreement on the objectives. Do European politicians have different priorities than Americans? For example, Europeans may be more concerned about the environmental damage caused by Bitcoin (BTC) mining, while US politicians may focus more on whether or not stablecoins are truly stable.

“Environmental damage is certainly a bigger problem in the EU, especially in the EU Parliament,” says Hansen, where some political groups like the Greens want to ban consensus protocols for proof of work, says Hansen. Most stablecoins are denominated in US dollars, which understandably worries Americans, he added, but they could become a concern for the EU if all goes well. Decentralized Finance (DeFi) will become USD.

Agnese sees the environmental problem as a red herring – possibly even a way to smear the technology by critics – and cited a Galaxy Digital report dated May 2021 that claims the Bitcoin network uses less than half the energy that both banks use the system and the gold industry, “arguably the two closest competitors if we look at cryptocurrencies as a potential medium of exchange.” capabilities, “he told Cointelegraph.

However, there is no doubt that US and European policymakers share common crypto interests, such as ensuring know-your-customer (KYC) and anti-money laundering (AML) processes. “The most important short-term common ground should be regulatory standards for centralized crypto custodians, exchanges, brokers, etc. on KYC, AML, tax and security issues,” said Hansen.

Stablecoins are also an area of ​​general concern, in Agnese’s view, “as many such cryptocurrencies that are pegged to major currencies like the USD have not been audited or, if they are, still leave a lot of money behind. Unanswered question”.

In his September 1 comment, Gensler noted that as of July, “almost three-quarters of the transactions on all crypto trading platforms were between stablecoins and certain other tokens,” and he suggests that stablecoins could make it easier for those trying to including AML and penalties to circumvent rules. Goodell noted, “European regulators are certainly aware of the inherent counterparty risk of stablecoins.”

“If a private stablecoin issuer fails to keep its promise to maintain a fixed price, will the European Central Bank bail out stablecoin holders? If the answer is definitely yes, then the issuer is effectively doing the work of the central bank by creating central bank digital currency on behalf of the central bank. If the answer is likely no, then stablecoins are not as stable and should be traded at a discount. “

However, Goodell disagreed with the notion that U.S. regulators are necessarily late when it comes to crypto assets. “I think the whole story is more nuanced,” he told Cointelegraph, explaining that the largest digital asset exchanges do their transactions in US dollars, while stablecoins the US is less acute than other countries. “

In addition, many large US financial institutions have holdings in the crypto space – that is, as actors in the infrastructure and services that underpin digital assets – and managers may prefer to be patient rather than upset the delicate balance, ”added he added.

Is Harmony Really Necessary?

After all, is a globally harmonized regulatory structure necessary for cryptocurrencies? Agnese has called for an approach to crypto regulation that allows technology to evolve and show what it can do – adding:

“Money laundering, the environment, and a lack of serious auditing efforts aren’t unique to the blockchain ecosystem. It would be a shame if the big governments saw an overreaction that stifled innovation and stifled the growth of the sector while depriving society of much of the future benefits. “

But the powers that be may not be so patient. As the New York Times reported, “Top officials from the Federal Reserve and other banking regulators have urgently launched what is known as a ‘crypto sprint’ to catch up. whose short history is shaped by both high-profile speculation and technological advances. “

Related: Huge Project: Nigeria’s CBDC Prepares for Pilot Launch on Independence Day

For his part, Goodell doubts a global regulatory system for cryptocurrencies, which is missing in the digital currencies of the central banks. “Globally harmonized regulation of digital assets will be difficult, if not impossible, but with the right approach to government-issued digital currencies,“ we can reduce the systemic risk associated with digital assets and avoid the need for global consensus. “

Meanwhile, Hansen told Cointelegraph that “bypassing a market worth more than $ 2 trillion that has been around for more than a decade is no longer an option. The regulatory framework for centralized crypto companies – exchanges, lenders, etc. – is tight, “although DeFi-related measures and perhaps some other issues” are complicated and require more discussion and time. “