“Come Senators, Congressmen, please heed the call. Don’t stand in the doorway. Don’t block up the hall.” Bob Dylan, The Times They are A-Changing – 1964
Because crypto currencies and digital assets recorded on a blockchain, such as non-fungible tokens (NFTs), have gained a measure of general acceptance, there seems to be greater interest in regulating these types of digital assets. The Biden administration appears to be making crypto currency regulation one of its early targets with Deputy Attorney General, Lisa Monaco, announcing last week the formation of a new law enforcement team to investigate criminal cases involving crypto currencies.
While reasonable minds may differ, regulating the crypto currencies space should be done carefully and with great care. This emerging market provides great opportunity for innovation and for strengthening our ever-shrinking privacy. In our view, the only two areas appropriate for regulation are stable coins and crypto currency exchanges.
For those unfamiliar with stable coins, these are crypto currencies whose value is tied to a fiat currency such as the U.S. dollar. Unlike Bitcoin and Ether whose value fluctuates depending on market forces, the value of stable coins is always tied to a fiat currency. The concern with stable coins is whether there are in fact sufficient assets to back the coins. Currently there are no regulations dictating or enforcing the existence of backing assets. It seems to us this creates the potential for fraud and may present an unreasonable risk to investors.
It is difficult for us to understand why decentralized crypto currencies require regulation. Bitcoin has been around for more than a decade and is no more likely to be involved in criminal activity than cash. Other crypto currencies, such as Ether, were created to serve as in-house currencies for applications built on their blockchains. This unregulated space has led to a wave of digital innovation such as the creation of smart contracts and NFTs, which provide proof of ownership of digital assets. We see no reason for the government to regulate this space.
Regardless of our opinion, it seems clear that greater scrutiny, regulation, and enforcement is coming. Lawyers and corporate compliance officers who work in digital financial exchanges and other related financial institutions that use crypto currencies need to strengthen their procedures to ensure compliance with money laundering laws and be alert for other criminal activity.
Eddie Suarez and Diego Pestana (Diego is somewhat new to the crypto space so he endorses these views only if they are right — LOL)
