LAS VEGAS–The former president of one of the largest crypto exchanges in the world has some thoughts on how crypto should be regulated, what crypto will mean in the payments space, and what’s next.
In a session at the Money 20/20 Conference titled “The Sardine & the Whale,” Brett Harrison, the former president of FTX who is now launching a new venture, and Simon Taylor of the fintech Sardine, discussed the issues outlined above and several others.
Here's a look at what was discussed:
Taylor: When you start adding value and making payments, the regulators take notice. Should crypto be regulated?
Harrison: Let’s take a step back. In the U.S., crypto is already regulated as a means of money transfer. You have to be licensed as a money service business under FinCEN. That’s great for the transfer aspect, the KYC aspect, the AML aspect, but it doesn’t say anything about how your regulate the trading of crypto as a financial instrument. There is currently no agreement over (which agency) is supposed to have oversight. Finally, there is some action in Congress over how to regulate this.
Of course, proponents of crypto have concern that by regulating crypto too much will lead to ending up in a position that is antithetical to DeFi. A lot of the recent discussion, especially in the Twitterverse, has been over whether that will be good or bad for crypto.
Taylor: What do you think?
Harrison: I think we have to have a balance. First of all, institutional participation is vital to the health of any market. One thing notice you will notice in markets is when the price goes down, the volume dries up. The institutional money isn’t there. They are concerned about the health and vitality of markets. When the SEC talks about regulating more, that makes institutions more interested in crypto.
Taylor: The cynical take is it’s a speculative game and bubble. What is the point of regulating it? What value does it bring to the financial services market and economy?
Harrison: There are lots of different ways to think about the utility of cryptocurrency. The first is it is a natively digital store of value. But I think the killer app for crypto is stablecoins. What this has become is a much, much lower cost, lower latency way of moving money around. It’s 24/7 and it’s natively global.
Taylor: Why is that important?
Harrison: There are two ways to look at it. The first is the trading aspect. While markets may or may not be 24/7, life and news is. So, if some global event happens on a Saturday but markets are closed…people are going to want to take on or lay off risk during that period.
For payments, there are times when you can’t get a wire transfer done. Having a 24/7 way of getting money around the economy is critical to all financial applications. Then there are the non-financial applications, like giving people ways of running a global operation.
Taylor: How do we make sure to continue to get value from it and what are the most important developments we need to see?
Harrison: I think we need to see clear, safe rules of the road for the trading of cryptocurrency. It’s so important that retail and institutional clients have a safe way to interact with crypto.
Taylor: But if one of the values is it’s natively global and oversight is national, is the whole thing moot?
Harrison: The other side of that is there needs to be a clear sort of sandbox for DeFi to exist that doesn’t ruin the ethos of DeFi. Microloans are an example. In some nations you may need to pay 50% or 100% interest to get credit. But this is way to make access to credit globally.
Taylor: Can we have a market in which we get this more efficient lending, financial inclusion benefit and be regulated, or will just add all the cost of the financial system on it and the microloan dream disappears?
Harrison: We have to ask what is the purpose of the regulation? It is to make sure a market is operating safely, efficiently and fairly. A benefit of DeFi is everything that happens in DeFi is completely out in the open. You can see the collateral, the lending, the borrowing. That’s different from having to trust an entity like some local currency exchange.
We might need a different régime to think about things around DeFi to understand there is so much more transparency in the market and we may not need the same rules. It’s important to educate the people who are making these decisions on how DeFi is different.
Taylor: It’s crystal ball time? What’s happening next? How does market play out?
Harrison: A few predictions. First, we are ending our decade of free money in the U.S. As a result markets are down globally. It’s not that interest rates are particularly high, but the sudden increase in rates has spooked the markets and people are removing risky assets. As that stabilizes, markets as a whole will bounce back and crypto will be among them.
What’s different now from 2018 is the unbelievable amount of venture capital and institutional capital invested in new companies, new technologies, digital technologies, and I think that will be the impetus behind the market bouncing back.
Taylor: What should people be watching? What will most effect the payments industry from a crypto and DeFi perspective?
Harrison: In payments, if you’re not completely upskilled on stablecoins, it’s time to start. There are lots of intermediary services out there to help you start to build on the stablecoin rails.