What exactly is current SEC Chair Gary Gensler dealing with in terms of crypto regulation today?
This may be “it” as outlined by former SEC Chair Jay Clayton on Blocksworks revelatory April 4 “Empire” podcast.
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Sure, Gensler is appointed by a Democratic president while Clayton’s appointment occurred during the Trump Republican administration. But, one senses that the game remains the same across political parties. Clayton shares towards the end of the episode, “I’m very empathetic to whatever Gary has to do. Because if the million American households are invested in the markets, it’s your job to do the best you can for them. But you’re not going to make everybody happy. That’s that’s just life…” Overall, Clayton is unequivocal that the crypto industry in the financial and regulatory world has come a long way in a short time.
Blockworks Jason Yanowitz and Santiago Roel Santos ask many important questions on crypto and smartly zoom out for a wider look at the financial landscape including the Great Financial Crisis in the 45-minute discussion. They also give Clayton a wide berth for his responses and they’re rewarded as Clayton seems to get a few things off his chest.
Highlights include… (lightly edited for clarity)
When crypto companies present to regulators
“Whenever you’re in front of a regulator, whether it’s a prudential regulator or national security regulator, consumer investor oriented regulator, you have to respect the fact that that’s their first job maintaining that level of protection. And then if you can, if you could do that and achieve efficiencies, have at it. The crypto community [has] said, ‘Look, there’s a trade off here. Let’s make it. Let’s take on a little bit of AML risk. Let’s take out a little bit of KYC risk, because we’re adding so much efficiency to the system.’ It’s one perspective, but it’s not a perspective that’s going to win the day.”
On a Bitcoin ETF
[In the past,] I think the BTC trading markets were in their incipient stages themselves at multiple, centralized venues around the globe, some with lots of liquidity, some with little liquidity. The idea that underlies an ETF is that you can be confident that the pricing for the ETF is is not manipulable. That was a legitimate concern of mine and of the regulators. (…) The trading in that market has since matured, and like anything become more centralized and those considerations become much less acute. We are trending toward what I’ll say is spot markets that are more reliable and therefore can be the basis for a product.
The theme that stood out to me was a recognition that the technology that has been proven to be scalable and resilient by – what I would say is the rise of crypto – is going to come to not just the incumbent financial system, but other aspects of our life… gaming, gambling, there’s a number of things where it’s going to come. It’s a recognition that this is a competitiveness issue. Putting on my US hat, which is really important to me, we won the internet race. The FAANG stocks are a result of the incredible human investment capital that focused on that transition to … the internet being the backbone of our consumer economy. We did great . We want to do that again in this space. There’s a recognition in the EO that that’s where we are.
This is just really important to me. The global use of the dollar as not just the currency of trade, but as the stable store of value in both the short and the long term is an enormous benefit to the US. The way the US has responsibly administered the dollar globally for trade has been a fabulous thing. But if the dollar-based investment and trade network doesn’t keep up with the technology, that’s a risk.
On CBDCs and stablecoins
One thing about a USDC or any central bank digital currency is there’s a fundamental change if you’re going to adopt that, which is the central bank now has privity – direct connection – with the consumer. That is something that if I were a central banker, I would want to take on. Central banks are really large scale wholesale operations. So that would be a big shift. And then there’s the technology. Think about a government entity like a central bank, being responsible for the technological backbone that supports daily consumer transactions, or some portion of those. Not a thing I love either. The government is not the best at building and maintaining tech systems. What do we have? Our our commercial banking, that technology is pretty darn good. And it generally keeps up to-date. I for one, see private stablecoin as a better way to go than trying to have a ubiquitous CBDC from a traditional point-of-view role of central banks, but also from a technological and resilience point of view.
There’s a lot more. Listen to the entire podcast on YouTube, too.