Even though the US financial environment has proven itself to be one of the toughest for ICOs and crypto exchanges, recent developments in the country shows us that exchanges and crypto innovators are far from complacent. The SEC itself finally relieved some of the tension by its recent statement on securities related to the crypto world.
THE COSTLY WAY TO A FEDERAL BANKING CHARTER
Coinbase, one of the largest US exchanges by volume, reportedly met with the authorities of the US Comptroller of the Currency earlier this year. Coinbase, known for its attempts to become an SEC-regulated exchange, did not disclose the details of the meeting, but the crypto community speculated that the exchange aims at obtaining a federal banking charter. This move would enable the exchange to bypass state regulators and become engaged at the federal level. Moreover, it would open doors wider to institutional investors. But along with the possibility of simplifying a complex set of money transmission licences under which Coinbase operates today, stricter KYC and AML rules that come with the licence for taking deposits would also apply. Compliance with federal regulation would indeed do away with dozens of state-based laws, but it would most likely involve a costly expansion of their legal department and major changes of the internal system. This is why financial commentators are sceptical about exchanges becoming banks anytime soon.
In the meantime, another large US exchange Bittrex obtained a licence for USD – crypto conversion. The service will initially be offered to corporate clients in select US states only, with future plans for going retail. The agreement was forged with New York-based Signature bank and is being hailed as another step toward the mainstream accepting crypto as safe and legit business. According to their CEO, Bittrex had to undergo a most thorough scrutiny and background checks.
ANOTHER SOURCE OF PRESSURE TOWARD CRYPTO REGULATION
Another noteworthy actor in the field of crypto regulation may be the IMF itself with its new document Monetary Policy in the Digital Age. The IMF warns central banks that effective monetary policy should fend off the threat posed by the competition of cryptocurrencies. Their concern is that a major increase in the usage of cryptocurrencies may deprive central banks of the ability to set short-term interest rates. The text also urges government authorities to regulate crypto assets and prevent any advantages that may arise from crypto being regulated less strictly than fiat. Recognizing the potential of cryptocurrencies it also recommends issuance of the banks’ own decentralized digital currency to supplement their reserves and physical cash.
Due to the costs and effort required to obtain a federal banking charter, we are unlikely to see a crypto exchange becoming a bank in the near future. Exchanges will rather remain a money service business seeking relations with SEC-regulated brokerages and banks to expand their services. Coinbase’s latest move – the acquisition of a regulated securities dealer could be one of the ways toward this end for the companies of substantial means.
The push toward regulations that may come from global financial institutions such as IMF will add additional momentum to the process of regulation and expedite its adoption. It will be interesting to observe the interplay of the two forces involved; one coming from exchanges and crypto entities trying to expand the use of crypto as much as possible, and the other coming from financial entities aiming at preservation of all the leverages of the current monetary system that make it a dominant one.