YAP Cast

YAP Cast S3E4: “The Future of Crypto Regulation” With Nikhilesh De

Welcome back to YAP Cast! In the fourth episode of Season 3, Samantha Yap continues her conversation with Nikhilesh De, Managing Editor for global policy and regulation at CoinDesk. Covering the world of crypto since 2017, Nik provides a unique perspective on the crypto industry.

In this episode, we will explore the changing landscape of crypto regulation and its impact on the industry.

Navigating Crypto Regulation and Bankruptcies

Different regulators handle specific aspects of cryptocurrency. For example, the IRS manages tax issues, the CFTC oversees commodities, and the SEC handles securities. This specialization allows regulators to focus on their expertise without worrying about all aspects of cryptocurrency. Nik, on the other hand, covers all areas.

Crypto company bankruptcies pose challenges for regulators, as the distribution of funds to users is unclear. Some users may receive their crypto back, while others may only get the equivalent in US dollars. The lack of precedent in bankruptcy proceedings complicates the establishment of clear rules for regulators.

Nik suggests that the crypto community should lobby Congress to change crypto regulations. Congress has the power to pass laws that override individual agency regulations. Although Congress has been hesitant to address crypto regulation recently, a bill aimed at providing regulatory clarity for Bitcoin and other crypto companies in the US has been passed.

Regulators’ Response to Recent Crypto Collapses

Regulators are paying more attention to the cryptocurrency industry due to the recent collapses of companies like Terra Luna and FTX. Nik believes regulators are definitely more attentive and “freaked out” by the significant losses incurred.

Regulators are concerned not only about the incurred losses but also about the potential for fraud and market manipulation. He says that regulators are “looking at harm mitigation and reduction,” and that they are likely to be more cautious about approving new crypto products and services.

The recent collapses have slowed down progress on ambitious plans for using cryptocurrency. For example, Nik says that the idea of using cryptocurrency for payments is “not really on the table right now” due to the associated risks.

Why do Regulators Drop News on Fridays?

There are a few reasons for this:

  • To give investors and consumers time to digest the news: Releasing news on a Friday allows individuals to read and understand the implications over the weekend, preventing panic selling and market volatility.
  • To avoid market volatility: News released during the week can cause price swings as investors react. By releasing news on a Friday, regulators provide time for the markets to stabilize before the next trading week.
  • To allow regulators to respond to feedback: Releasing news on a Friday allows regulators to receive public feedback over the weekend, which helps refine policies and address concerns.

Nik notes that regulators are not always consistent in their use of this practice. For example, the Securities and Exchange Commission (SEC) has released news on Fridays in the past, but it has also released news during the week.

Regulators’ Varied Priorities

Efforts to develop a global approach to cryptocurrency regulation are still a work in progress. Not all countries adhere to the standards set by the FATF, and some have their own regulations.

Regulators have different priorities when it comes to regulating cryptocurrency, such as investor protection or preventing money laundering. Consequently, regulatory approaches vary across countries.

When discussing the potential self-infliction of competitiveness by regulators, Nik acknowledges the possibility. He highlights Singapore as a country that has adopted a more welcoming approach to cryptocurrency regulation, establishing itself as a hub for crypto activity.

Putting the Brakes on Innovation: A Look Ahead

The discussion focuses on staking as a service and the perceived lack of understanding from regulators regarding its importance for network functionality. Nik is uncertain about how this tension will unfold in the near and long term. He suggests two potential scenarios: Congress passing a bill with regulatory rules or regulators issuing binding guidance to companies. However, he considers both outcomes unlikely at present.

Past events, such as the reaction to the Libra project in 2019, alarmed regulators and led to its rebranding as Diem. Nik emphasizes regulators’ significant power in shaping the industry. He highlights ongoing efforts by regulators and lawmakers to understand recent collapses and mismanagement in the crypto space. Regulators are likely to conduct fact-finding missions and investigations before taking further action.

Future of Crypto Regulation in 2023

Nik wonders if regulators will respond to engagement and input from the crypto industry, particularly through platforms like the CFTC’s Tech Advisory Committee. He expresses interest in observing the unfolding interactions and their potential impact.

Samantha appreciates Nik’s dedication to making sense of complex topics and reading government documents, recognizing the valuable service he provides. The conversation concludes with gratitude for Nik’s insights and a thank you for joining the podcast.

Follow Nikhilesh De on Twitter here