Here's What the CEOs of Ripple, Coinbase, and Twitter Are Taking Seriously

Regulation of cryptocurrencies has always had an impact on the market and will continue to do so for the foreseeable future. As MicroStrategy’s Michael Saylor noted, “regulatory FUD” will be the most “logical challenge” for investors in the crypto asset space over the next decade.

As Bitcoin becomes more popular, officials have begun calling on global regulators to monitor digital assets . U.S. Treasury Secretary Janet Yellen believes that cryptocurrencies facilitate illicit financing. In fact, she wants to study and reduce the use of Bitcoin to prevent anti-money laundering through Bitcoin.

At the same time, the U.S. Securities and Exchange Commission (SEC) is also strict on digital assets . So far, it has not approved the investment company's application for a digital asset-based ETF, as well as New York fund manager VanEck's application to register a Bitcoin Trust Fund with the SEC in December 2020.

A month ago, VanEck listed a bitcoin-focused exchange-traded note on Deutsche Boerse.

Does this indicate that outside the United States, officials have taken positive steps? The European Court of Justice (ECJ) ruled that citizens of EU member states do not need to pay VAT on gains from crypto asset investments. Government agencies in the Swiss canton of Zug also accept digital assets as a means of payment.

After Brexit, the UK Treasury proposed detailed regulatory measures for digital assets and stablecoins in 2021. The UK government hopes to "ensure that its regulatory framework can fully leverage the benefits of new technologies, support innovation and competition, while mitigating risks to consumers and enhancing the stability of assets."

In fact, the Financial Conduct Authority recently published a report on the UK’s regulatory approach to the fintech industry based on Ron Kalifa’s recommendation for the authority to establish a digital economy task force. In the report, Kalifa noted that the UK could become a “global hub for the issuance, clearing, settlement, trading and exchange of cryptocurrencies and digital assets.”

However, it remains to be seen whether the US Treasury will attempt to take similar measures as the UK.

Ripple Effect

Companies that focus on cryptocurrency assets believe that the regulation of cryptocurrencies in the United States has never been relaxed . In fact, given the lack of clear regulation of cryptocurrencies in the United States, Ripple CEO Bradc Garlinghouse even considered moving the company's headquarters to London.

The CEO has previously stated that the regulation of crypto assets in the United States is "deplorable." He stressed that the lack of a clear national regulatory framework puts U.S.-based crypto asset companies such as Ripple at a global disadvantage . According to Garlinghouse, Ripple has always longed for a "level playing field."

Now, some believe that U.S. regulators have clarified their laws on a case-by-case basis. This was particularly evident in the Ripple v. SEC case, which clearly defined cryptocurrencies and debated whether XRP was a security.

Although Ripple believes that XRP is not a security, U.S. Securities and Exchange Commission Commissioner Hester Pierce still said that U.S. federal agencies have different views on digital assets.

Hester Pierce claimed, "…we have a very open category called 'investment contracts'…one thing can be described by different agencies as something completely different, and that can frustrate people, even though it's a security under our regulations."

She added: “That’s why I’ve called for more clarity on the regulation of digital assets. It’s actually very hard to define what an asset is, and we could do more to provide some guidance.”

In short, Ripple executives claim that XRP does not meet the Howey test, contrary to the SEC's claim that it is a security. Ripple claims that it has no investment contracts with XRP buyers, and XRP buyers obviously do not receive the company's revenue benefits. In fact, XRP is recognized as a currency in the UK, Singapore and Japan.

Coinbase Dilemma

Crypto asset companies have a need to be independent from regulators, and Coinbase is at the forefront. Coinbase is registered with FinCEN as a money service business. As the world's leading cryptocurrency exchange, Coinbase recently published a transparency report showing that it received 1,914 "subpoenas" in 2020. These requests are mainly in the form of subpoenas, and sometimes include search warrants and court orders. U.S. agencies alone issued 1,113 subpoenas, accounting for 60% of the total .

The Coinbase team noted that since the requests are “valid under the Financial Regulations and other applicable laws,” the exchange has an “obligation to respond.” However, the exchange issued a thought-provoking statement in response.

“We will not hesitate to push back when appropriate, even when it is inconvenient and costly to do so.”

On January 5, 2021, Coinbase submitted a "formal opinion" to the U.S. Treasury Department FinCEN, highlighting their concerns about the Treasury Department's new regulations on user-controlled wallets before 2021. Coinbase called it "unreasonable crypto asset regulation" and claimed that the Treasury Department's proposed rules would have a significant impact on user privacy.

Coinbase is about to go public, and regulators may demand closer scrutiny of such companies. This could lead to regulations on how cryptocurrency exchanges collect and report data, and could lead to taxes. However, Coinbase noted in its IPO prospectus that it supports some of these regulations.

“ If the world economy operated on a common set of standards that could not be manipulated by any one company or country, the world would be a fairer and freer place, and human progress would accelerate .”

Unnecessary friction?

Meanwhile, FinCEN’s proposal affects other investors in the cryptocurrency market economy. Jack Dorsey, CEO of Square and Twitter, expressed his displeasure with the proposal. He believes that once the rule is enacted, his company will face unnecessary friction with investors. He countered that “ [Treasury’s] onerous information collection and reporting requirements deprive American companies like Square of the opportunity to compete on a level playing field, making cryptocurrency a tool for economic empowerment. ”

“Delays in updating old regulations or issuing new regulations that are not risk-based are a drag on innovation, economic growth, and U.S. competitiveness.”

Dorsey said a proposal by the Treasury Department would undermine its responsibility to protect the financial system. However, in his view, FinCEN “has an opportunity to lead” regulations that “support growing innovation in America.”

Even mining company Argo Blockchain PLC has similar expectations. Peter Wall, CEO of the mining company, which has grown 1,400% in the past year, noted, "Like any industry, there will be a tug-of-war with regulators, and we think some rules are good."

What to do next?

The current situation is not surprising given the ongoing “tension between innovation and regulation,” said Timothy Massad, former chairman of the Commodity Futures Trading Commission (CFTC).

“ The most basic and important issue is that digital asset innovation has outstripped our regulatory framework, and regulation will not stop innovation unless it is done poorly.

While the outlook for U.S. regulation remains uncertain, perhaps U.S. regulators can provide companies with the assurances they seek in a straightforward approach. Such an environment could attract more institutional investors and benefit the market as a whole.

The original text comes from ambcrypto and was translated by Blockchain Knight. The English copyright belongs to the original author. Please contact the translator for Chinese reprint.