Crypto service and space regulation has been a hot topic for a minute. Largely, it is attributable to banks overseeing their interests, in terms of financial advantages. The dream of a lawless crypto world that competes with banks has been supplanted by a more grim, ironic version of the circumstances.
First things first, the year has been pretty rough for crypto all around, especially with the recent FTX and Bankman-Fried shenanigans. As we have discussed in the previous blog, Bankman-Fried has recently been arrested on the Bahamas and was extradited to US on the 23rd of December.
There is also the news regarding the New York State Department of Financial Services (NYDFS) publishing their guidelines online. The whole thing is interesting, because on the one hand, it reveals an interest towards crypto services from the banking world, and on the other it showcases how little trust the organization (as well as others) shows the crypto world.
As Reuters reports, these guidelines demand that the banks present a comprehensive precautionary account 3 months (90 days to be exact) prior to actually using any of the crypto services. This guidelines entails a business plan of various financial activities that would have to be offered, in order to describe the possible effects on the capital and liquidity of the bank.
According to Adrienne Harris, the incentive behind this move is the protection of interests, whether they are customer or banking related. More specifically, so that banks stay competitive.
This last part highlights that crypto is still taken very seriously, both in terms of the threats it poses to the centralized federal systems and the power disbalance that might accompany any such threat turned legitimate.
Politically this is already an issue that is being investigated, considering what senators Warren and Smith had to say just a few days ago.
This guideline is effective immediately and will determine whether banks are able to engage in crypto activities or not.
Ever since the FTX crash, a lot of people have been wondering whether there is a possible set of regulations that could have prevented the various crises of the 2022 crypto year. Obviously, there is no clear answer but that does not mean that we cannot infer some conclusions.
It should also be noted that various firms associated with the FTX crash have taken a major hit to their reputation, which is evident in insurance agencies refusing any official relations with them.
Moreover, Binance is having a bit of a rough time as of late if the report from Nansen is to be believed - 1.9 billion dollars have been withdrawn in just 24 hours, which is a new record since June. Zhao was quick to reply that the situation is fully under control and is not alarming.
Binance has also announced that withdrawals are not a serious issue for them and that they are ready for such situations. However, that does not sound very convincing to investors, regulators and government officials.
Which should not come across as a surprise considering the fact that Binance, just a while ago, restricted withdrawals of one of their top stabel coins. Zhao named token swap, the exchange of cryptocurrency (usually on differing blockchains), as the reason behind the decision.
These last few months have been devastating for the crypto world, but there are some potential opportunities if we go by the reactions of federal and state agencies.
Evidently banks still want to make use of various crypto services, as well as offer them to their customers. Despite this, regulators and politicians are understandably hesitant and are mulling over the multiple options and possibilities related to crypto tools. However, the little trust that had been gained during the crypto boom has seemingly evaporated.
Zhao and Binance, with numerous regulators, see reinforced regulations as a solution to these problems.
You can view the report in its entirety here.