Interview: US crypto regulation

Last week, we published a piece assessing the increasingly hostile environment which the cryptocurrency industry faces in the US. 

The sector is being squeezed following a year that saw multiple scandals flood the industry, highlighted by the collapse of cryptocurrency exchange FTX in November and the Terra ecosystem last May. 

American regulators have begun to move into the space. In February, the Binance-branded stablecoin, BUSD, was shut down. Coinbase was issued with a Wells notice in March. The Commodity Futures Trading Commission charged Binance and its CEO, Changpeng Zhao, for various violations soon after.  

Some believe regulators are unfairly targeting the crypto sector. Others think the punitive stance is well overdue, and that the industry brought it upon itself for deliberately skirting laws over the past few years. 

To get an insider’s view, we sat down with Konstantin Shulga, CEO and co-founder of Finery Markets, the OTC trading solutions provider for digital assets. 

Invezz (IZ): With the regulatory climate becoming more hostile in the US, do you think more companies will flee abroad?

Konstantin Shulga (KS): The US crypto market could lose its edge if they don’t get their regulatory act together. While the country boasts of some great projects, its regulatory framework is lagging behind that of other nations. Europe, with Germany at the forefront, Hong Kong, Switzerland, and the UAE are making significant strides in crypto regulations, leaving the US in their wake.

The US can still maintain its status as a blockchain innovator, but law by enforcement tactics and recent events such as so called “Operation Choke point 2.0” and are putting undue pressure on the industry. Despite the industry being over a decade old, policymakers and financial authorities are yet to reach a consensus on all aspects of crypto regulations.

Businesses will always gravitate towards jurisdictions with favourable regulation and ease of doing business, and the US risks losing out on these opportunities. The question is, will the US step up and take action to ensure it remains at the forefront of blockchain innovation, or will it watch as other nations take the lead?

IZ: Do you think the US’ aggressive regulatory clampdown will significantly hurt the crypto industry, even if companies move abroad?

KS: The industry was a living, breathing organism, capable of adapting and evolving to its surroundings on a global scale. It had withstood challenges in the past, and was poised to do so again. The blockchain held the potential to revolutionise finance, banking, and payment processing, eliminating weak points and increasing transparency and security. 

A plethora of brilliant minds were eagerly working on innovative projects, and it was hard to fathom that the industry as a whole would suffer. However, a slowdown was possible, as the US had always been a breeding ground for innovators. Ultimately, the impact of the regulatory clampdown on the crypto industry will depend on the specific regulations that are implemented and how companies choose to respond to them.

IZ: Some have criticised regulators for a perceived lack of regulatory clarity when it comes to crypto. Where do you stand on this?

KS: As a provider of multi-dealer trading solutions for institutional crypto trading, we’ve always been advocates for clear-cut regulations that don’t stifle innovation, but do safeguard investors. We’re excited about the potential of a market with lower regulatory risks, but we recognize that cryptocurrencies have made things more complicated for financial regulators. 

Developing consistent policies is difficult, especially taking into account complex aspects of the financial system from monetary policy, capital account regulation, legal status and related tax rules, to prudential, conduct, and oversight requirements for market participants. This may explain why there is still a lot of uncertainty surrounding the regulation of crypto, and debates continue to persist. 

With that being said, it’s clear that this industry has been around for over a decade. However, the more gaps there are in regulations, the more challenging it becomes to enforce them without causing harm. It is therefore imperative that the financial authorities step in and take action, as the industry eagerly awaits their actions. 

IZ: The regulatory discussion has brought up a lot of debates about the good and bad of crypto, especially in the context of all the scandals that have taken place over the last year. Do you believe the good of crypto outweighs the bad?

KS: The best way to ensure consumer protection and reduce fraud in the crypto space is to create robust regulations that leave no room for fraudsters to operate. Over the past few years, financial authorities have been working hard to gather the necessary knowledge and expertise to create rules that ensure the safety of market players.

However, it’s important to strike a balance between protecting consumers and allowing this innovative technology to continue to grow and evolve. From trading to investing to payments, the potential of cryptocurrency is limitless, and we are interested in seeing regulations that encourage this exciting new frontier.

IZ: What jurisdictions stand out to you as offering favourable crypto regulation, and do you think they will see an influx of activity from the industry in the future?

KS: Europe, with Germany at the forefront, as well as Hong Kong, Switzerland, and the UAE, are making significant strides in crypto regulations. These regions are considered well-regulated jurisdictions, which is attracting crypto businesses to them.

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