22nd December 2022 > > The U.S. again.

tl;dr

Regulation of private stablecoins will have undoubted yet unexpected benefits for crypto supporters.

Market Snap

Market Wrap

BTC is in a very tight range since we broke $17k to the downside nearly a week ago. There is still negative news weighing on sentiment with the declared bankruptcy of Core Scientific, a BTC miner. Furiously trying to raise some new funds that will not entirely wipe out shareholders and might possibly delay leasing payments until such a time as there is a recovery in the price of BTC, any resolution that does not result in forced sales of their stock of BTC will be a good thing.

Occasional Series – Sam Bankman-Fried

The fraudster and charlatan Bankman-Fried has arrived in a New York courthouse to be welcomed by the news that other executives of FTX and Alameda Research have pleaded guilty to fraud and are now cooperating with the Feds. He is unlikely to ever leave jail again.

Curious Cryptos’ Commentary — U.S. regulation of stablecoins

Senator Pat Toomey, in his last significant intervention before retirement next month, has introduced a new bill aimed squarely at the regulation of stablecoins. Pat has previously indicated his support for stablecoins when he stated:

“By digitizing the U.S. dollar and making it available on a global, instant, and nearly cost-free basis, stablecoins could be widely used across the physical economy in a variety of ways.”

There are some politicians who use the exact same argument in favour of CBDCs (Central Bank Digital Currencies), but very few of them can be trusted to be telling the truth – the motivation for their support for CBDCs is far more sinister on every level.

Known as the Stablecoin Trust Act of 2022, this legislation has some broad and important aims, focussed on enhancing investor protection, and building confidence in these products.

All stablecoins must be backed by high-quality liquid assets, which is a long way of saying (or at least implying) short-dated U.S. Treasury bonds, which now offer decent yields of over 4% in maturities up to one year. Given their 100% correlation with the value of the USD, and the 100% guarantee of principal and interest payment, it is most likely that the successful stablecoins will undoubtedly go down this route.

There is specific exclusion of algorithmically backed stablecoins such as UST. The failure of this algorithm to maintain a dollar peg led to the rapid and dramatic collapse of UST and LUNA, one of the key negative events in the crypto world of 2022. For a detailed yet swift reminder of those events you could do worse than have a read of several editions of the CCC published during May 2022 at https://www.curiouscryptos.com/.

In the event of a stablecoin insolvency stablecoin holders are designated as the most senior creditors.

Regular and public audits are required from authorised accounting firms, presumably based in the U.S.

Stablecoins will not be classified as securities, though any organisation that offers interest bearing accounts for stablecoins will have to comply with securities laws.

Finally – and this is the interesting bit – non-bank institutions can issue stablecoins so long as they comply with the rules and receive a federal license issued by the OCC (Office of the Comptroller of the Currency).

…

If this legislation is passed and implemented, we could see an explosion in the issuance of high-quality USD linked stablecoins across many different blockchains offering near-instantaneous and virtually cost-free payments for goods and services.

This would have two very positive impacts for us.

Firstly, this development will introduce a brand new cohort of users to the crypto world, from a business and a retail perspective. That can only be positive for the longer-term adoption of cryptos.

Secondly, the undoubted future success of private stablecoins under a regulatory regime of this nature negates any need for a publicly run stablecoin i.e. a US dollar CBDC. Those who subscribe to the view that government interference in our lives should be kept to a minimum wherever possible will be loudly cheering at this initiative.