Hello fintech-enthusiasts. Happy Labor Day!

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Remember the “cryptic” story about the future of cryptocurrency we discussed in the last post? The story emphasized that stablecoin issuers will face a major backlash from policymakers while trying to gain a foothold in the payment system. On August 30th, California’s state legislatures passed a bill that would require any entity engaging in “digital financial asset business activity” to be licensed by the state’s Department of Financial Protection and Innovation by January 1, 2025. The Blockchain Association, a crypto lobbying group, drew parallels between the bill and the strict crypto licensing regime of New York. More importantly, the bill provides that by January 1, 2028, stablecoins may not be issued by any entity unless it is organized as a bank—a condition that almost no stablecoin issuer meets at the moment! The bill currently awaits approval or a veto from Governor Gavin Newsom.

To what extent do you think California’s approach to the regulation of stablecoins, if it turns into law, would influence other states and, perhaps, the federal government?

Aside from the backlash against stablecoins, limiting retail trade (i.e., trade by individual investors) in digital assets is quickly becoming an important area for crypto regulation. Two weeks ago, we saw that nine provinces in Canada imposed a ceiling on the amount of digital assets an individual investor can purchase yearly. Other countries are setting guidelines for crypto advertisements that target individual investors. In Thailand, for example, the Thai Securities and Exchange Commission issued new rules that require advertisements for digital assets to include “clear and visible warnings about the risks of investing in cryptocurrencies.” In Dubai, one of the main crypto hubs of the world, the Virtual Asset Regulatory Authority announced new guidelines for crypto advertising that seek to ensure factual accuracy and avoid any misleading information about guaranteed returns. Singapore will soon follow suit as it is currently mulling the issuance of similar rules according to the director of the Monetary Authority of Singapore.

In your opinion, what are some of the consequences of such increasing restrictions on individuals’ ability to reach crypto markets? Do you think it is better for individuals to partake in these markets on their own or through an intermediary?

Back to the story of the last post, which talked about an ongoing regulatory effort to differentiate different classes of digital assets. On September 1, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) released a request for comment on proposed changes to Form PF, which is used by hedge funds to confidentially disclose to the SEC their holdings of certain assets. So far, Form PF requires no disclosure of digital asset holdings; hence, the SEC and CFTC’s proposal to add a new sub-asset class for digital assets. The request for comment asks two fundamental questions: Should digital assets be reported by name or by type? And, in relation to the differentiation efforts highlighted by the cryptic story, should central bank digital currencies and fully-collateralized stablecoins be subject to different standards or the same treatment applicable to all other digital assets?

Do you think the second question asked by the SEC and CFTC helps clarify where the two regulators stand in relation to fully-collateralized stablecoins?

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See you next week!