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Happy Monday! Joanna here with The Guidance.
I said in my last newsletter that I was looking forward to an exciting week, and, oh boy, last week did not disappoint.
The US Congress took steps forward with not one but two crypto bills.
Committees in the House of Representatives voted to pass a bundle of bills out of committee, meaning the bills will be considered by the full House next.
One bill would create a tailored market structure for crypto trading, while the other seeks to regulate stablecoins.
The crypto industry celebrated these developments as a win. But there’s frustration that Congress is taking too long to provide a legal framework just for crypto.
NOW READ: Coinbase CEO joins crypto industry in celebrating ‘historic day’ as bill passes committee hurdle
While lawmakers wrangle over the finer points, the Securities and Exchange Commission has filled the legal vacuum with a series of enforcement actions against major exchanges, including Coinbase and Binance.
Meanwhile, the rest of the world has just got on with creating crypto-friendly legal frameworks. The stellar example of course is the European Union’s Markets in Crypto-Assets regulation, but the United Kingdom, Dubai and Hong Kong are also inching forward with their own initiatives.
NOW READ: Binance’s German license pullback may be ‘strategic choice’ as MiCA looms
The problem is, the rest of the world can’t just ignore the US, says Oliver Linch, CEO of Bittrex Global.
UK-based Linch watched SEC chair Gary Gensler’s crackdowns from the vantage point of a business that insists it does not offer services to US persons.
‘We’ve been sucked into it involuntarily in quite a public way’
— Oliver Linch
But Linch no longer had the luxury of that relative detachment when SEC slapped both Bittrex Global and its US arm with a lawsuit in mid-April.
“We’ve been sucked into it involuntarily in quite a public way,” Linch told me.
“We took a ‘not my circus, not my monkeys’ approach, but it’s a bit my monkeys now.”
Echoing the suits that followed weeks later against Binance and Coinbase, the SEC charged Bittrex with running an unregistered exchange. Bittrex Global has since filed a motion to dismiss the case.
NOW READ: SG Forge’s new crypto licence may ‘fast-track’ its way to EU market
By the time the lawsuit came, Bittrex US had already announced it was shuttering, citing regulatory uncertainty.
“You can’t operate in that kind of environment, something’s got to give. In our case, they decided to just shut down in the US,” Linch said.
That was a pity, but the closure of Bittrex US has wider implications than just one business, he added. It points to how the industry globally won’t thrive until the US has a viable legal framework.
‘It would be tempting to say, “Well, you know what? Let’s just ignore the US”’
— Oliver Linch
“It would be tempting to say, ‘Well, you know what? Let’s just ignore the US,” Linch said. “We’ll put down an anchor, pretend it doesn’t exist. And isn’t it great, all these clever people are leaving the US and coming our side, we should be at an advantage.”
But it’s not feasible to think you can divorce the global financial system from the United States, he added.
“They’ve still got the infrastructure needed for traditional finance, they’ve still got the best universities in the world, the best innovators and entrepreneurs in the world,” he said.
Behind Gensler’s crackdown is his philosophy that existing securities laws are sufficient and clear. If crypto companies aren’t following them, that’s because non-compliance is baked into their business models.
‘You get this unedifying discussion of trying to categorise crypto. Is it a kind of security, commodity or derivative? And the answer is, it’s none of those things, it’s crypto’
— Oliver Linch
For Bittrex, that’s galling. Rather like Brian Armstrong, his counterpart at Coinbase, Linch said Bittrex tried to engage with the regulator in good faith. But the securities laws are simply not suited to novel technology.
“You get this unedifying discussion of trying to categorise crypto. Is it a kind of security, commodity or derivative? And the answer is, it’s none of those things, it’s crypto,” Linch said.
“You’re never going to fit that square peg into the round hole, especially when that round hole is in some cases getting on for 100 years old.”
NOW READ: ‘Non-compliance is their business model’: Gensler slams crypto businesses in House committee hearing
He said the US should take inspiration from the models that already exist in territories like Liechtenstein and Bermuda. The EU’s MiCA is comprehensive, albeit imperfect, with some gaps around decentralised finance still to be addressed.
“But it’s still a better approach than putting your fingers in your ears and staying everything’s fine. Because it’s not,” Linch said.
Whether the House market structure bill is the right vehicle for tailored regulation is debatable. There are some strong arguments against its approach from high-ranking House Democrats, and academics.
When it comes to tech and finance, good policy is often best based on principles rather than prescriptions. Tech evolves, and if the rules are too rigid, they fail to capture all the uses it might be put to in future, creating loopholes.
The House bill might be too rigid to maintain good oversight of crypto, some have argued.
But at least, Linch said, it’s a sign that Congress is finally moving on crypto regulation.
“The 33 and 34 Acts [securities laws] have stood the test of time in many ways. But to say that means they are always going to be fit for purpose underestimates just how important a change crypto is,” he said.
Do you have a tip-off, a question or an opinion about crypto reg? Email me: joanna@dlnews.com
