Within hours of Facebook’s announcement that it was planning to launch Libra, its own cryptocurrency, US lawmakers had issued a response asking the company to delay. Alluding to the company’s “troubled past,” Democratic Congresswoman Maxine Walters stated that Congress and regulators should have “have the opportunity to examine these issues and take action.”
So far, lawmakers have been slow to put in place any regulations or guidelines specific to the burgeoning crypto markets. However, the comments from Congresswoman Walters appear to indicate that it’s inevitable that US regulators will intervene in Facebook’s Libra plans. If, or when, this happens, it will undoubtedly have broader ramifications for the entire sector.
Crypto companies have been watching these developments closely, and some are now taking action to address the looming specter of SEC regulation. Trading platforms such as Bancor, Binance, and Poloniex have now all taken steps to deter US users, in a bid to ensure that they avoid falling foul of any existing or future rules.
More Freedom to Operate
While US crypto traders will surely be disappointed by these steps, it could spell good news for the crypto space overall. Blockchain firms that avoid the US will have greater freedom to operate and innovate without the shackles of regulatory uncertainty holding them back.
Bancor is a good case in point. Currently, Bancor’s users can change any Ethereum ERC-20 or EOS tokens through the company’s liquidity network. A standard crypto exchange uses an order matching system to find buyers and sellers of any particular token, meaning that if liquidity is low, a trader could end up waiting for the exchange to find a match.
The Bancor liquidity network uses a relay token process. Nodes on the network can stake any supported token along with Bancor’s native BNT token. Having staked tokens as a reserve means that there is always a ready supply of liquidity, so users aren’t left waiting for a match.
Bancor’s vision is to allow users to change any token for any other token, which will depend on it, adding other blockchain platforms to the network in the future. Therefore, the company recently announced it would be restricting US traders from using its services. By withdrawing from the US, it means that the company is free to establish future partnerships with any other blockchain network or token in future, without concern that it needs to exclude any one project for non-compliance with US laws. The move will be likely to encourage more projects to stake their tokens in the Bancor network.
Short-Term Pain, Long-Term Gain
Binance has been similarly prudent. The company recently announced it would also be barring US users from trading on its exchange. This came shortly after the news that Binance was planning to launch a US version of its exchange that would be compliant with US securities trading laws.
While this means that US traders — and many altcoins that rely on Binance for volume — will take a hit, ultimately it means the company has greater freedom to innovate. Binance has been a trailblazer in many crypto exchange innovations, with its BNB coin bucking the bear markets over the last year. Therefore, temporarily detaching from the US is a necessary step if the company is to continue developing new ideas.
Poloniex is another example. The company still offers services for US users, but it has recently delisted nine crypto-assets for US users. Circle, the firm that owns Poloniex, has criticized the US government for failing to take action on addressing cryptocurrency regulation.
Putting the Pressure on Regulators
We don’t really know why the US has been so slow to issue regulations, preferring instead to rely on precedent such as the Howey test, developed decades ago. Perhaps cryptocurrencies have been perceived as too “niche” for regulators to go the extra mile and do something concrete.
However, the approach has been damaging to the cryptocurrency sector in the US. Issuing vague pronouncements has seen would-be innovators either tiptoe around trying to justify their existence or simply bypass the US altogether when perhaps they didn’t need to do so. If more concrete legislation comes out, firms will know what they can and cannot do. Rather than regulation quashing crypto, it’s more likely it will introduce frameworks that provide more comfortable freedom to operate.
In the meantime, companies like Bancor and Binance pulling out will hopefully serve to increase pressure and could accelerate faster decisions. Lobby groups will push harder for change, given that the US will suffer from the loss of economic and technological benefits of crypto firms basing themselves there. Inevitably, Facebook’s Libra plans will also be a powerful force in this direction.
Overall, US crypto users will have to accept the short term pain of being barred from their favorite crypto services. While this isn’t ideal for anyone in the space, a tipping point needs to be reached for the US regulators to finally decide which way they want to tackle (what they perceive) as the crypto problem.