The biggest risk to cryptocurrencies isnt another exchange implosion or multi-million dollar hack, its regulation. At least thats what Patrick Hillmann, chief strategy officer at the worlds largest crypto exchange Binance, said Monday.
Hillmann argued that U.S. crypto regulations are becoming increasingly strict and misguided, which could cause some real market volatility or even choke out the industry.
The U.S. has always been a place that has really fostered great innovation, he told Insider. Unfortunately, I think [what] were seeing now is going to come at a real cost [to investors] over time.
U.S. regulators have stepped up their enforcement of crypto regulations in the wake of the collapse of FTX last year, once the worlds second largest crypto exchange.
In January, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement warning banks about the risks of exposure to crypto-asset related activities. And in the weeks since, the Securities and Exchange Commission (SEC) has dished out seven-figure fines to celebrities who promoted cryptocurrencies and clamped down on staking featureswhere users earn rewards for holding certain cryptocurrencies. The crypto exchange Kraken was fined $30 million for improper disclosures related to its staking feature earlier this month.
Binances Hillmann is particularly worried about increasing regulations against exchange tokenswhich are used to facilitate transactions on crypto exchangesand stablecoinswhose value is pegged to an external asset like the dollar or gold.
After the collapse of the algorithmic stablecoin TerraUSD last year, regulators have begun looking into popular stablecoins that are supposed to maintain a one-to-one peg to an external asset. But Hillmann said that over-bearing regulations could lead to the loss of what he called stablecoin safeguards for crypto investors. Stablecoins are typically seen as a safe haven asset by crypto investors due to their low volatility.
When you take that away from users at a time like this, that safety net disappears, Hilmann argued. At the same time, were seeing a pressure campaign on U.S. banks to also not service crypto. Not only do [investors] not have the ability to move their money to a safe [place], they also arent able to pull it off the exchanges easily.
Hillmanns comments come after the New York Department of Financial Services forced the blockchain platform Paxos to stop minting Binances stablecoin(BUSD) earlier this month, citing unresolved issues related to Paxos oversight of its relationship with Binance. On Feb. 12, the Wall Street Journal also reported that the SEC plans to sue Paxos for violating investor protection laws in regards to BUSD. The stablecoins market cap has dropped from $16.1 billion to just over $12 billion in the weeks since, according to data from Coinmarketcap.com.
While the enforcement of cryptocurrency regulations has been steadily increasing over the past year, the SECs decision regarding Paxos and BUSD is the first lawsuit targeting a stablecoin and amounts to a big step up from regulators, which some argue is meant to send crypto back to the fringes of finance.
In January, Binance admitted to management issues with its stablecoin offerings after multiple outlets found irregularities in the collateral used to back those tokens. But the company said last week that it is nearing a settlement with U.S regulators to make amends and pay fines for its numerous legal issues in recent years.
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