| From: Glenn Petersen | 9/26/2021 4:28:05 AM | | | | | | Stablecoins in Spotlight as U.S. Begins to Lay Ground for Rules on Cryptocurrencies
Sponsors say stablecoins are safe, but regulators are concerned about potential risks to financial stability
By Andrew Ackerman
Wall Street Journal
Sept. 25, 2021 5:30 am ET
WASHINGTON—The Biden administration is taking aim at so-called stablecoins as it begins to lay the ground for stricter regulation of cryptocurrencies that could shape the future of digital money.
Stablecoins are a form of digital currency issued by companies such as Tether Ltd. and Circle Internet Financial Inc. and designed to combine the stability of national currencies like the dollar with the ability to trade quickly online like bitcoin.
Because stablecoins are backed by safe assets such as Treasurys, they should maintain a tight link to the dollar and easily be redeemed for dollars, the issuers say. This contrasts with cryptocurrencies like bitcoin that aren’t backed by assets and can fluctuate wildly in value.
But current and former regulators worry that stablecoins could be vulnerable to the equivalent of a bank run if large numbers of investors suddenly rush to redeem them, forcing sponsors to sell the assets at fire-sale prices and potentially putting stress on the financial system. That is what happened to some money-market mutual funds—long treated by investors as safe as cash in the bank—during the 2008 financial crisis. The government moved then to prop up money funds, and again in March 2020, as part of a broader effort to stabilize markets roiled by the coronavirus epidemic.
If a stablecoin issuer has no capital and its reserves fluctuate in value, “that inherently creates run risk,” said Sheila Bair, former head of the Federal Deposit Insurance Corp. “Having stringent rules requiring investment in assets that are stable, true cash equivalents, that’s the best way to address the instability.”
Startups issuing stablecoins invest in assets that make them sizable players in capital markets. But there are no clear rules about how those assets should be managed to ensure stability.
That is likely to change. “We’ve got a lot of casinos here in the Wild West, and the poker chip is these stablecoins at the casino gaming tables,” Securities and Exchange Commission Chairman Gary Gensler said this week in a virtual event hosted by the Washington Post.
As early as next week, the Federal Reserve is set to lay out its views in a paper some officials have informally described as a blueprint on “the future of money,” including stablecoins. It is also expected to seek public comment on whether it should issue its own digital currency that would likely compete with stablecoins, a question that appears to have divided Fed officials.
Next, the President’s Working Group on Financial Markets is expected to make recommendations for a framework to regulate stablecoins. The group includes Mr. Gensler, Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell.
Jeremy Allaire, co-founder of Circle Internet Financial, in 2018.PHOTO: ANDREW WINNING/REUTERS
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And in the coming months, a smaller group of bank regulators, including the Fed and the Office of the Comptroller of the Currency, may address whether U.S. banks are legally permitted to hold cryptocurrencies on their balance sheets and potentially lay out a framework for the capital treatment of lenders’ exposures to such instruments, administration officials say.
“Collectively, the regulatory measures will help determine how financial innovation and technology will be integrated into the banking sector for years to come,” said David Portilla, a former Obama-era Treasury staffer who is now a partner at law firm Cravath, Swaine and Moore LLP, which represents banks and financial technology firms.
Stablecoin issuers generally say they look forward to working with officials to support transparency and compliance. Jeremy Allaire, chief executive of the USD Coin issuer, Circle, has said the focus of the president’s working group is a good thing for stablecoins and that he supports developing clear standards.
“Circle believes that well-regulated digital dollars, built on public blockchains, can play a vital role in making the movement of value faster, safer and less expensive,” he said in a statement.
In a statement, Tether said it would “continue to work with counterparts across the world to enhance transparency and dialogue about the current and future benefits of stablecoins.”
Stablecoins, which are based on the same blockchain technology as assets like bitcoin, are a relatively small but fast-growing corner of the $2 trillion crypto world. The value of the three largest—Tether, Circle’s USD Coin and Binance USD—has swelled to about $110 billion from about $11 billion a year ago.
For now, stablecoins are used mainly by investors to buy and sell crypto assets on exchanges such Coinbase, which process trades 24 hours a day. They are also used as collateral for derivatives—contracts to buy or sell an underlying security at a specified price—and many of those contracts are settled in stablecoins.
Administration officials say that if the coins are adopted more broadly as a swift means of payment for consumers and businesses, that would put them into competition with banks and firms such as Visa Inc. and MasterCard Inc. Diem Association, a group backed by Facebook Inc. and 25 other members, is preparing to launch a stablecoin that will leverage the social network’s three billion users.
The rapid growth in the sector could exacerbate run risk, administration officials say. To address those concerns, they are weighing whether to recommend bank-like capital and liquidity requirements for stablecoin issuers. They are also considering whether to regulate them more like money funds, which are subject to strict limits on the types of short-term assets they are allowed to invest in.
Stablecoins are a form of digital currency issued by companies such as Tether. PHOTO: TIFFANY HAGLER-GEARD/BLOOMBERG NEWS
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Stablecoin issuers say they can meet redemptions on demand. Circle, the second-largest, said that as of this month, it will begin to hold all of its reserves in cash and short-duration Treasury securities. It also said it would seek to become a federally regulated bank.
Administration officials working on the presidential panel’s report say even seemingly safe reserves, such as cash held at commercial banks, could pose risks for U.S. lenders if stablecoin issuers are forced to withdraw deposits to meet a rush of redeeming investors, the officials said.
Write to Andrew Ackerman at andrew.ackerman@wsj.com
Stablecoins in Spotlight as U.S. Begins to Lay Ground for Rules on Cryptocurrencies - WSJ |
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| To: w0z who wrote (3786) | 9/26/2021 5:18:48 PM | | From: Glenn Petersen | | | | While China's unhappiness with crypto is old news, it would seem that they are turning the crew a bit tighter.
Lesperance said the move is an attempt to freeze crypto assets so that holders can’t legally do anything with them. “Along with not being able to do anything with an extremely volatile asset, my suspicion is that like with Roosevelt and gold, the Chinese government will ‘offer’ them in the future to convert it to e-yuan at a fixed market price,” he said of President Franklin Roosevelt’s policy around the private ownership of gold, which was later repealed.
“I have been predicting this for a while as part of the Chinese government’s moves to close out all potential competition to the incoming digital yuan,” said Lesperance.
China- and Hong Kong-based bitcoin holders scrambling to protect their crypto assets
PUBLISHED FRI, SEP 24 202111:44 AM EDT
UPDATED FRI, SEP 24 202112:46 PM EDT
MacKenzie Sigalos @KENZIESIGALOS
CNBC.com
KEY POINTS
-- Some crypto holders in China and Hong Kong are scrambling to find a way to safeguard their digital currencies, according to an attorney who works with overseas clients to protect their crypto wealth.
-- This comes after the People’s Bank of China said in a Q&A posted to its website that all cryptocurrency-related transactions in China are illegal, including services provided by offshore exchanges.
Some crypto holders in China and Hong Kong are scrambling to find a way to safeguard their bitcoin and other tokens after China’s central bank published a new document Friday spelling out tougher measures in its wider crypto crackdown, including souped-up systems to monitor crypto-related transactions.
Bitcoin was down as much as 6% and ether sunk as much as 10%, amid a wider sell-off early Friday, as investors digested the news.
“Since the announcement less than two hours ago, I have already received over a dozen messages – email, phone and encrypted app – from Chinese crypto holders looking for solutions on how to access and protect their crypto holdings in foreign exchanges and cold wallets,” David Lesperance, a Toronto-based attorney who specializes in relocating wealthy crypto holders to other countries to save on taxes, told CNBC early Friday.
Lesperance said the move is an attempt to freeze crypto assets so that holders can’t legally do anything with them. “Along with not being able to do anything with an extremely volatile asset, my suspicion is that like with Roosevelt and gold, the Chinese government will ‘offer’ them in the future to convert it to e-yuan at a fixed market price,” he said of President Franklin Roosevelt’s policy around the private ownership of gold, which was later repealed.
“I have been predicting this for a while as part of the Chinese government’s moves to close out all potential competition to the incoming digital yuan,” said Lesperance.
The People’s Bank of China said on its website Friday that all cryptocurrency-related transactions in China are illegal, including services provided by offshore exchanges. Services offering trades, order matching, token issuance and derivatives for virtual currencies are all strictly prohibited, according to the PBOC.
The directive will take aim at over-the-counter platforms like OKEx, which allows users in China to exchange fiat currencies for crypto tokens. An OKEx spokesperson told CNBC the company is looking into the news and will let CNBC know once it has decided on the next steps.
Lesperance claims some of his clients are also worried about their safety.
“They are concerned about themselves personally, as they suspect that the Chinese government is well aware of their prior crypto activities, and they do not want to become the next Jack Ma, like ‘common prosperity’ target,” said Lesperance, who has helped clients to expatriate in order to avoid taxes, amid a rising crypto crackdown in the U.S.
That said, it’s common for the authoritarian state to lash out against digital currencies.
In 2013, the country ordered third-party payment providers to stop using bitcoin. Chinese authorities put a stop to token sales in 2017 and pledged to continue to target crypto exchanges in 2019. And earlier this year, China’s takedown of its crypto mining industry led to half the global bitcoin network going dark for a few months.
“Today’s notice isn’t exactly new, and it isn’t a change in policy,” said Boaz Sobrado, a London-based fintech data analyst.
But this time, the crypto announcement involves 10 agencies, including key departments such as the Supreme People’s Court, the Supreme People’s Procuratorate, and the Ministry of Public Security, in a show of greater unity among the country’s top brass. The State Administration of Foreign Exchange also participated, which could be a sign that enforcement in this space might increase.
Signs of coordination
There are other signs of early government coordination in China. The PBOC document was first announced Sept. 15, and a document banning all crypto mining by China’s National Development and Reform Commission was released Sept. 3. Both were published on official government platforms on Friday, suggesting a collaboration between all participating agencies.
And unlike past government statements that refer to cryptos under the same umbrella language, this document specifically calls out bitcoin, ethereum and tether, as stablecoins begin to enter the lexicon of regulators in China.
Bespoke Growth Partners CEO Mark Peikin thinks that this is the start of widespread, near-term pressure on the price of bitcoin and other cryptocurrencies and that “the risks facing Chinese investors will have a significant spillover effect, leading to an immediate risk-off trade in the U.S. crypto market.”
“Chinese investors, many of whom continued to turn a cold shoulder to the Chinese government’s latest and largest crackdown on cryptocurrency trading the last several months, may no longer remain bellicose,” Peikin told CNBC.
“Chinese investors thus far largely skirted the ban by decoupling transactions – using domestic OTC platforms or increasingly of late, offshore outlets, to reach agreement on trade price, and then using banks or fintech platforms to transfer yuan in settlement,” Peikin said.
But given the PBOC has improved its capabilities to monitor crypto transactions – and the recent order that fintech companies, including the Ant Group, not provide crypto-related services – Peikin said this workaround used by Chinese investors will become a progressively narrow tunnel.
Friday’s statement from the PBOC adds to other news out of China this week, which has roiled crypto markets. A liquidity crisis at property developer Evergrande raised concerns over a growing property bubble in China. That fear rippled across the global economy, sending the price of many cryptocurrencies into the red.
However, not all are convinced this downward pressure on the crypto market will last.
Sobrado thinks the market is overreacting to Friday’s announcement from the PBOC, given that a lot of the exchange volume in China is decentralized and conducted peer-to-peer – increasingly the most telling metric of crypto adoption. While exchanging tokens P2P doesn’t evade regulatory scrutiny, Sobrado said those crypto exchanges are harder to track down.
Lesperance also points out that Friday’s news might actually strengthen the business case for cryptos as an asset class, given they are a hedge against sovereign risk.
Ultimately, the biggest question is whether this latest directive from Beijing has teeth. “The running joke in crypto is that China has banned crypto hundreds of times,” Sobrado said. “I’d be willing to wager people will be trading bitcoin in China a year from now.”
China, Hong Kong bitcoin holders scramble to protect their crypto assets (cnbc.com) |
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| From: Glenn Petersen | 9/27/2021 12:07:24 PM | | | | | | Cryptocurrency Exchanges Curb Trading From China After Beijing’s Warning
Huobi Global said it stopped allowing new customers in mainland China to register accounts
By Elaine Yu
Wall Street Journal
Sept. 27, 2021 6:41 am ET
HONG KONG—One of the world’s largest cryptocurrency exchanges said it would close all user accounts in mainland China by the end of the year, days after the country’s central bank declared all crypto-related transactions illegal.
Huobi Global, which was founded in 2013 and currently operates from offices in Singapore, South Korea, the U.S. and other countries, over the weekend said it stopped allowing new customers in mainland China to register accounts. The exchange will also gradually retire existing accounts in China by the end of 2021 to ensure the safety of its customers’ assets, it added.
Another big cryptocurrency exchange, Binance, said Monday that it recently started blocking account registrations using China cellular phone numbers.
Like Huobi, Binance was also originally founded in China. Both firms had been facilitating so-called peer-to-peer transactions by matching people who wanted to buy and sell cryptocurrencies using the yuan.
Beijing has regularly moved to rein in crypto-related activities, including by banning exchanges from operating within its borders since 2017 and more recently cracking down on crypto mining and forcing companies to shift their computers elsewhere. But individuals in the country have continued to find ways to trade bitcoin and other digital currencies, often via transactions facilitated by platforms operating offshore.
In a move targeting such platforms, the People’s Bank of China this month said it is illegal for overseas exchanges to serve residents in China through the internet. The regulator also warned that the firms’ employees based in mainland China would be investigated if they continued to advertise or offer crypto-related services.
The price of bitcoin dropped after the Chinese regulator’s notice on banning crypto-related transactions was published Friday. On Monday, bitcoin was trading at $43,490, according to CoinDesk, after recouping some recent losses.
Du Jun, a co-founder of Huobi, said in a statement that an unspecified portion of the exchange’s users are in mainland China, adding that the account closures would have a short-term impact on revenue. He added that nearly 70% of the group’s global business originates from other countries and that proportion is “steadily increasing.”
Mr. Du didn’t reference Chinese regulators’ toughened stance on the industry. He said Huobi has legal business licenses in multiple jurisdictions and “will double down on our compliance efforts and continue to build compliant operations on a global scale.”
Shares of Hong Kong-listed Huobi Technology Holdings Ltd. , a unit of Huobi Global that manufactures electronic products and operates a virtual-asset service platform, tumbled 21.5% on Monday.
On Monday, a Binance spokesperson said users in China haven’t been able to access its website since 2017 when it was blocked. The company also said its app isn’t available in China. Its peer-to-peer cryptocurrency trading service was launched in October 2019, according to a blog post by the company, which recently removed a reference to its services for the Chinese market.
FTX, a major crypto derivatives exchange that was based in Hong Kong, in recent days moved its headquarters to the Bahamas, an offshore tax haven.
Sam Bankman-Fried, FTX’s founder and chief executive, said on Twitter Saturday that the Bahamas is one of the few places with a “comprehensive framework” for cryptocurrencies.
“The Bahamas has emerged from Covid lively, safe, and without quarantine,” he added. It was an apparent contrast to the situation in Hong Kong, whose strict border controls and long quarantine requirements have drawn many complaints from the international business community.
“It is impractical to have a global business based out of a jurisdiction that we can’t easily take business trips from,” FTX said in a statement.
China’s tough stance on cryptocurrencies doesn’t directly apply to Hong Kong, which has been an active venue for the industry. But the city is considering its own rules, including by potentially limiting trading to professional investors—something FTX had already pre-emptively implemented.
Write to Elaine Yu at elaine.yu@wsj.com
Cryptocurrency Exchanges Curb Trading From China After Beijing’s Warning - WSJ |
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