The powerful combination of incoming crypto regulation in the US and the immediate global impact of Russian sanctions mean that the cryptocurrency exchange market looks set to undergo a serious shake-up in 2022. This week, US Senator Elizabeth Warren announced a new legislation. to prevent crypto companies outside of the US from working with sanctioned companies. She also authorizes the Financial Crimes Enforcement Network (FinCEN) to force US citizens with crypto transactions of $10,000 or more to report them.
Clearly, the global sanctions against Russia have brought cryptocurrency exchanges firmly into the center of geopolitics for the first time. Coinbase announced that it was banning 25,000 Russian accounts. While Binance stated that: “Unilaterally deciding to ban people from their crypto would go against the very reason crypto exists.” But just as revealing was the news from Wasabi Wallet that it will begin introducing censorship methods into its mixing procedures, showing that fear of regulation was beginning to impact beyond major exchanges, even before the legislative action. planned by Warren.
What this in all likelihood means is that the advantage exchanges outside of the US had in largely ignoring regulations, benefiting from lower overheads and restrictions on their trading activity, is definitely overcome. It’s not all bad news, as the positive response to the US administration’s cryptocurrency executive order shows, but it certainly means the industry needs to consider what this means in the long run and what this means for cryptocurrency investors and traders. cryptocurrencies looking for the best offer. or the most secure transactions.
The US executive order underscores seismic shifts in the administration’s approach to cryptocurrencies by seeking to “establish the first comprehensive federal digital asset strategy for the United States” and directing the Commerce Department to create a framework that “drives U.S. competitiveness and leadership in and leverage of digital asset technologies.” In short, the administration’s six key priorities, according to the fact sheet, are to protect U.S. interests, protect global financial stability, prevent illegal uses, promote responsible innovation, financial inclusion, and US leadership. As confirmed in a CoinDesk Report, the order does not establish specific positions that the administration wants the agencies to adopt, nor does it impose new regulations on the sector. In fact, it was welcomed by many in the industry who see it as a positive step forward. According to Jeremy Allaire, CEO of Circle, which runs stable coin USDC, “This is a watershed moment for cryptocurrencies, digital assets, and Web 3 akin to the 1996/1997 whole-of-government awakening to the commercial Internet.”
But as Senator Warren’s legislative moves show, it’s his actions, not his words, that count. The recent news of action that reigned in the SEC by the US Congress after its enforcement arm pursued “information from unregulated cryptocurrency and blockchain industry participants in a manner inconsistent with the Commission’s standards for launch investigations” shows that significant risks to cryptocurrency exchanges remain as the US decides its crypto policy.
Despite the understandable focus on US crypto regulation in recent weeks, this sea change has not appeared overnight, for example China’s ban on crypto trading and mining took place in 2021, after the ICO ban in 2017. In contrast, in Singapore, a leading location for the cryptocurrency industry, until July 2021, while the rest of the world was bent on cracking down on cryptocurrencies, “crypto players Cryptocurrencies like Binance have found Singapore to be a haven of opportunity, even as a storm of regulation looms over the industry in other parts of the world.” As recently as last October, following the latest crackdown on cryptocurrencies in China, the city-state of Singapore was seen as one of the main beneficiaries of fleeing businesses.
But then, in December 2021, Binance, with a daily turnover of US$76 billion, no doubt fed up with the delays and opacity of the MAS licensing system, withdrew its application from Singapore. In 2022, it is also revealing how Binance responded, with its move to partner with Paysafe in the UK, providing the exchange with access to the UK payment network despite concerns from the UK financial regulator, the FCA. While this week, Binance CEO CZ met with Brazilian regulators after signing a memorandum of understanding to buy a stock brokerage and secure a virtual asset license in Dubai in a series of moves that underlie his gaze. to secure your future in a more regulated crypto market.
All of these moves, along with competitors like FTX and Coinbase, will establish a future in the most regulated global environment for cryptocurrencies. Anndy Lian, President of BigONE Exchange, said: “I believe that these twin forces of US-led policy regulation, and even stricter Russian sanctions on crypto transactions, in the near future in the next 12 to 18 months will result in a more regulated expansion. sector with greater competition particularly between exchanges and profit margins tighter than in the past.” Speaking after her expert contribution to Crypto Expo Dubai, Lian suggested that this means that decentralized exchanges and privacy platforms will be more clearly separated from the mainstream than in the past. “What does this mean for service and conventional exchange offerings? The bottom line is that it should be driven by the needs of the community, by the users of the exchange,” she added.
The best way to achieve this community involvement is clearly still up for grabs. Notable are comments from Ethereum co-founder Joseph Lubin, who has questioned the long-term viability of Solana, which in his view pays overly generous rewards to users who validate transactions on the network, all backed by generous venture capital. Solana needs to “figure out a more sustainable business model for the network,” Lubin said. In response to Lubin’s criticism, Solana Labs said that “simply looking at protocol revenue does not tell the full story of the long-term performance” of a blockchain’s economic model. Figuring out the economic model for crypto companies, in the face of new regulation and Russian sanctions, whether decentralized or centralized, is key to the long-term future of the crypto sector.
Speaking on the panel “Why do crypto exchanges keep flourishing?” At Crypto Expo Dubai on March 16, Lian warned: “I think being regulated is a very good thing, it is the reason why I have invested my time providing cryptocurrency and blockchain advice to the government over the years. But the thing is, we also have to understand the other side of the crypto startup equation which is innovation; if we stay solely in the sandbox environment, in a closed regulated environment, the real risk is that the innovative decentralized aspect will be lost and we will end up with a centralized world.”