Debanking in the US - Tradfi starts groundwork to shape the digital assets industry
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
The digital assets industry has seen a challenging year, contagion, debanking and a winter that's unrelenting. Not for all it seems. Increasing numbers of traditional finance (tradfi) players are entering the space and co-creating an industry with increased trust and innovation.
The digital assets industry has faced its challenges including an extended winter. Despite its challenges which include contagion and a current bank run - it seems that powerful traditional financial institutions are recognizing the value of the new economy.
Earlier this year the industry saw the closure of Silvergate and Signature Bank, and while it does appear that the SEC has sent a very strong message about its stance on the digital assets industry, others may argue that this stance appears to violate the Federal Deposit Insurance Corporation's (FDIC) mandate. The Economic Report of the President included an entire chapter about digital assets, and while it's great that the industry is included – one needs to ask whether the actions seen across the banking sector are really in the best interest of the digital asset industry.
Despite the varying views, there are two certainties 1. The banking and crypto industry are intertwined 2. The digital assets industry is here to stay. This has created an opportunity for banks and asset managers to leverage innovation from the digital assets industry and create their own platforms while remaining within the regulatory frameworks of traditional finance - probably one of the biggest challenges in the digital assets industry that is being addressed by various bodies globally.
"While the actions of the FDIC may be questionable – they're not entirely unfounded. Since the contagion brought about by Terra Luna, and then FTX, a wave of crypto collapses and fraud has been uncovered. It's not only damaging financially but the amount of trust that is lost to potential customers, regulators, Governments and traditional capital is far-reaching. We must do more as an industry to proactively protect and enhance the reputation of digital assets." says Christopher Flinos, HAYVN CEO.
The current bank run will fuel anxiety and the long-term impacts of this current banking crunch are far-reaching and quite serious. Fiat on and off ramps, like HAYVN, are the conduit for capital to flow into and out of cryptocurrency markets. Bank support, in the current environment of rising interest rates and inflation, is worrying for everyone - not only the digital assets industry. "The current banking system clearly lacks innovation. The digital assets industry, on the other hand, has the ability to scale innovation. More must be done to understand how to integrate digital assets with traditional financial systems and how to navigate the regulatory environment to not only weed out any unsavoury actors in the digital assets industry but provide a supportive regulatory environment for that integration from the traditional finance ecosystem," adds Flinos.
The direct consequence of the actions of the US and its aggressive stance against digital assets has seen the advancement of the industry in other jurisdictions. Research and Development hubs are being set up in destinations that appear to be crypto-friendly. Similarly, the lawmakers and governments of multiple countries are doing the work to ensure that they are leading the market on the road to digitization. This will multiply in importance when central banks globally begin implementing central bank digital currencies (CBDC).
Yet despite this progress in other jurisdictions, no meaningful global digital asset ecosystem can exist without the involvement and support of the United States government, its institutions and its economy. Current action against Coinbase and Binance by the SEC is discouraging innovation and progress. The banking system should be more open and inclusive – two things it currently isn't. It also needs to be open to innovation with the regulatory and privacy frameworks that exist to help and protect customers and businesses.
In line with the increasing adoption and acceptance of digital assets, the notable surge in exchange-traded fund (ETF) applications, particularly following BlackRock's announcement, highlights the changing sentiment towards Bitcoin and the digital asset industry. Although these ETFs may encounter similar regulatory challenges from the SEC, it is important to acknowledge the shifting sentiment surrounding Bitcoin and the broader industry. This influx of applications demonstrates the recognition by established financial institutions of the potential of digital assets, as they actively seek to participate in this rapidly evolving market. Their involvement serves as validation for the importance and relevance of digital assets, paving the way for increased trust and fostering innovation within the financial sector.
By embracing digital assets and actively collaborating with industry stakeholders, the United States has the opportunity to solidify its position as a global leader in the digital asset ecosystem. The United Arab Emirates, through Dubai, is one example of a country that has significantly evolved in both adopting new technologies like blockchain and in its cryptocurrency law. This proactive stance on the digital assets industry has created a hub for numerous companies to run their operations from Dubai. According to research, Dubai's crypto industry attracted 772 crypto-based companies for residents to choose from when it comes to finding a career in the sector, and 869 residents are currently in crypto-related jobs. Dubai also came in second place in the top ten crypto hubs. Additionally the UAE as a whole has 137 crypto career listings or 14.51 jobs per one million people, which is the ninth highest globally. The work done by the government and institutions has led to the UAE ranking third in global ownership of cryptocurrency. The involvement and support of the US government, its institutions, and its economy are crucial in shaping a thriving and inclusive financial landscape, where traditional finance and digital assets converge harmoniously.
"The digital assets industry is currently valued at over $1 trillion dollars – it's not one that can simply be ignored. While there may currently be a debanking trend – it's one that won't last indefinitely. The current ecosystem will continue to evolve and the players that want to make this industry thrive will engage with the required stakeholders to ensure regulatory frameworks are put in place and adhered to. The technology in the digital assets industry will foster innovation and bridge the gap with traditional finance. HAYVN is committed to ensuring the evolution and credibility of this industry – we aim to bring digital assets as a payment tool to 75% of the world's payments merchants by 2024. We believe with the ongoing conversations with regulators this is the way to go for increased adoption," concludes HAYVN CEO, Christopher Flinos.