The biggest risk to cryptocurrencies isn’t another exchange implosion or multimillion-dollar hack, it’s regulation. At least that’s what Patrick Hillmann, chief strategy officer at the world’s 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.
U.S. regulators have stepped up their enforcement of crypto regulations in the wake of the collapse of FTX last year, once the world’s 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” features where 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.
Binance’s Hillmann is particularly worried about increasing regulations against exchange tokens—which are used to facilitate transactions on crypto exchanges—and stablecoins—whose 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 overbearing 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 owing to their low volatility.
While the enforcement of cryptocurrency regulations has been steadily increasing over the past year, the SEC’s 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
