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FT editor Roula Khalaf has chosen her favorite stories in this weekly newsletter.
The author is the president of Coinfund, an investment company specializing in crypto assets.
For the cryptocurrency industry, the 2024 US election was a key turning point on the path to redemption and legitimacy as an investable asset class. With over 290 pro-crypto members of Congress and an incoming president declaring the US will become the crypto capital of the planet, the crypto industry is finally being supported rather than fought by the government.
This change could help the United States elevate itself as a global leader in technology and innovation as a new internet takes shape that leverages blockchain, artificial intelligence, and cryptocurrencies.
But progress is only possible if post-election excitement leads to thoughtful policy. First, regulators need to immediately change their approach to the markets they regulate.
During the Biden administration’s enforcement regime, agencies prioritized expanding their jurisdiction, faced with new asset classes that don’t neatly fit into decades-old regulations.
A fundamental principle, the prevention of harm by bad actors, must remain a fundamental goal. But industry estimates suggest that enforcement actions and lawsuits under the Biden administration will blur regulatory lines, drain agency (and taxpayer) resources, and cost U.S. businesses more than $400 million. Gave. While regulators fought, fraudsters pulled off one of the largest criminal scams in U.S. history right before our eyes. Market watchdogs don’t need new laws or regulations to stop bad actors. It’s a matter of focus and priorities.
For the crypto industry to reach its full potential, new policies are needed that understand the nuances of technology built on decentralized blockchains. One overriding principle must take precedence. That is, companies, organizations and their activities should be regulated, but technology itself should not be regulated.
An example is the current Internet. While creating a website or app is not, and should not be, illegal, the law governs how you use that service. As Judge Catherine Polk Feira noted in her dismissal of the lawsuit against cryptocurrency exchange Uniswap, payment apps like Venmo would otherwise be held liable for drug transactions that used their platforms to facilitate the transfer of funds. It’s like trying to ask.
Clear, transparent and predictable policies, including important principles such as protection and disclosure of customer assets, should also be driven by law rather than the whims of regulation. Clarity will unlock a new kind of institution and attract generations of brave entrepreneurs who are the future lifeblood of our economy. They are no longer burdened by the legal risks and personal liability of an industry that was too uncertain.
Public policy support is long overdue. Bitcoin, the original cryptocurrency that hit new highs of over $100,000 per digital coin, was born from the ashes of the global financial crisis. The virtual currency industry has experienced booms and busts over its 10-and-a-half year history. But along the way, the technology has matured with the birth of “smart contracts” that enable new crypto-powered applications such as decentralized finance (DeFi), gaming, social media, and even 5G wireless networks. Currently, around $200 billion worth of dollar-pegged stablecoins are already playing an exciting role in expanding the dollar as the world reserve currency. The stablecoin issuer is already among the top 20 holders of Treasury bills in the world.
New normalization and de-risking will pave the way for accelerated adoption. This could not happen quickly. In traditional financial markets, outdated legacy infrastructure struggles to handle the load of 24/7 activity. However, in the cryptocurrency market, public blockchains can easily power the market 24 hours a day. At a time when economic inequality continues to plague the world’s population, DeFi’s universal access opens the door to a more just system.
Accelerating the development of artificial intelligence also presents opportunities. The openness, transparency, and scale achieved through the integration of cryptocurrencies and AI can pave the way for responsible innovation. One example is the World app, which Coinfund is investing in. This allows users to anonymously and securely prove that they are truly human.
The financial and reputational risks of not having a digital asset strategy currently outweigh the risks of having one. Together, with thoughtful support from policymakers, we can build the system that works for us.
