January’s second inauguration of Donald Trump – sometimes claimed to be crypto’s most powerful supporter – has, unsurprisingly, resulted in a flood of activity across the sector. Bitcoin, among several other major cryptocurrencies, dropped sharply following January 20th, largely because Trump avoided mentioning them during his inauguration speech.
On January 21st, the US Securities and Exchange Commission (SEC), which has long been in favor of clearer rules across the sector, announced the appointment of Hester Pierce to oversee the regulation of digital assets including cryptocurrencies and non-fungible tokens (NFTs).
A new vision for crypto regulation, or a wild west for digital assets?
This is the first major move by Trump’s new administration to overhaul crypto policy, while reversing a crackdown on the industry under his predecessor. Pierce, also known by her nickname crypto mum, is a vocal supporter of cryptocurrency and favors a regulatory framework that encourages innovation and development in the industry. Pierce also served under Trump’s previous administration as an SEC commissioner in 2018. Back then, she openly criticized existing approaches, questioning whether ‘hostile’ regulators were the best solution to bring order to the industry.
For the most part, the development spells good news for cryptocurrency companies, some of which faced sanctions under Joe Biden for allegedly flouting the SEC’s previous rules. The common consensus was that existing rules are inadequately suited to cryptocurrencies, and instead are only relevant to traditional currencies and transactions.
On the other hand, a lack of sufficiently robust regulatory frameworks could also lead to a ‘wild west’ scenario, where poor control and oversight leads to market instability and investor vulnerability. Other well-documented risks, such as an increase in money laundering and other illicit activity, could also result from a lack of alignment between federal and state regulators.
From ‘regulation by enforcement’ to a more collaborative approach
Cryptocurrency supporters have largely been in favor of greater regulatory clarity which, it is hoped, the new administration will introduce. Potentially, a more collaborative method, one involving close engorgement with the public, other regulatory bodies, and investors, could enable fintech startups to innovate with greater confidence without adding risk to their businesses. The belief is that this should attract more investors and expand market opportunities.
Despite these developments, and whether they turn out to be negative or positive – and for whom – it is as vital as ever that fintech and crypto startups keep a close eye on regulatory developments and work hard to continuously align their operations with current and forthcoming guidelines. As Pierce herself warned, regulating the industry effectively will take a lot of time and effort and is dependent on input from a broad range of industry participants.