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What to Expect (and Beware of) in Crypto in 2023
It’s the first work day of 2023 and Coindesk brings out their policy team to give us their forecast for 2023 and what the year holds for crypto, crypto regulation and the rocky road ahead. The consensus that there will be a lot of talk about crypto regulatory reform and crackdowns with little in the way of solid action seems a safe bet, but we believe crypto-positive voices in Washington and other policy hubs can break through. Too often it seems like lawmakers and regulators want to push the regular polyhedral peg of TradFi rules into the irregular polyhedral hole that is blockchain and crypto, but a growing number of rational voices are seeing that won’t work. We believe the industry can work with Washington ensure consumer/investor protection without smothering the industry in its nascent stages.
Whether crypto exchange customers can expect their personal information to remain redacted, should the provider enter bankruptcy, will continue to be a growing question for courts. This year we saw that question arise with companies like Celsius and FTX. Judges initially allowed the companies to file their creditors’ information under seal, but Celsius later released the names and holdings of all of its customers, while FTX is currently going through hearings about the same issue.
The U.S. Securities and Exchange Commission (SEC) may also be gearing up to force exchanges into compliance with existing rules. SEC Chair Gary Gensler has long said he believes his agency has the authority it needs to regulate crypto companies, and that the law is clear in his view that most cryptocurrencies are securities and therefore more crypto exchanges are securities trading platforms. More recently, the SEC has suggested that it may be moving closer to actually doing something about this; Enforcement Director Gurbir Grewal said the runway for crypto companies is getting shorter, and the collapse of FTX has heightened the pressure for regulators to get a hold of this industry before something else falls apart.
The cross-border nature of crypto warrants global cooperation on regulations, international bodies like the International Monetary Fund and the Financial Stability Board have said. The push for global standards for crypto only intensified as the markets went from bad to worse this year. In 2023, we’ll hear more about a global push for oversight and perhaps watch international leaders tackle a tougher question – are regulations enough?
The new Congress may take a while to settle in during 2023, so it could be months before the Senate (still controlled by Democrats) and the House of Representatives (newly piloted by Republicans) will find common ground on crypto. The effort that may be farthest along is the House Financial Services Committee’s bipartisan stablecoin regulation bill, so that relatively narrow legislation could test whether crypto is among the limited range of issues that a divided government can move forward on. The two parties, several committees and a lot of crypto-doubting lawmakers have to be brought together before the industry can finally get more comprehensive regulation.
Though 2022 was a major year for crypto bankruptcies, the momentum shows no signs of slowing in 2023. The bankruptcy process is often slow and painstaking, and the bankruptcies that began in 2023 will stretch well into 2023 and perhaps beyond. And, if the dominoes continue to fall (and they almost certainly will), still more crypto companies will join them.
It’s a good discussion worth the full read.