The U.S. is moving away from the “regulation of crypto by enforcement” to a real and growing threat of “banning by enforcement”, all in the name of protecting American markets and consumers.

Most digital asset owners want to ensure that their products are safe and compliant for their customers. To achieve this, however, they require clear regulatory guidelines which take into consideration the specifics and underlying technology of digital assets, as well as the level of certainty required for further investment.


Caroline Malcolm, vice president for global public policy and Chainalysis.

In the absence of an adequate regulatory framework, enforcement actions do not achieve this. They do not protect consumers either. Goalposts are constantly shifting with each enforcement action and can be unclear because of settlements that have never been made public.

Chainalysis’ data shows that consumers are still entering the market. This underscores the need for real regulatory and legislative reform.

U.S. based companies are debating more and more whether to relocate in other jurisdictions with clear regulatory guidance. It is harmful to U.S. customers because it limits their market options and may push a revolutionary technology out of the boundaries of U.S. laws. A comprehensive regulatory framework will be the only way to move forward, even if all you are aiming for is consumer protection.

We believe that a comprehensive regulatory framework is essential to protect the U.S. consumer and prepare it for the future of digital financial services.

This framework is based on three pillars. We will evaluate and support any legislative proposal through these three pillars.

1. Protective measures

Digital asset sectors can be volatile. The safety and soundness for digital asset players depends on their ability manage a variety of risks. Some of these risks affect all businesses, including the risk of asset price shocks or redemption surges. Some of these risks are specific to digital assets, including operational and technical risk related to the operation and technology of the blockchain and smart contracts.

The prudential regulatory requirements will help to ensure that players of digital assets are resilient and can continue to fulfill their obligations to clients under pressure. The prudential measures that are appropriate for each business will be determined by their risk profile. They can include capital and liquid buffers, as well as resolution and business continuity planning in order to wind down the business.

Mike Belshe, U.S. Opinion

In the case of stablecoins, a sound regulation could include their unique token stabilization mechanisms. Digital asset custodians might be required to consider technological and operational safeguards when managing private keys. It is important to work closely with digital asset holders to tailor prudential requirements to their specific risk.

2. Market Conduct Regulation

To ensure the integrity and confidence of markets, market conduct regulations establish standards for behavior among participants and intermediaries. This is just as important for digital asset markets as it is in other asset markets.

Market conduct is a broad concept. In the digital asset world, the implementation of internal controls is a key aspect. It is important to clearly separate corporate assets from customer assets. Separating reporting lines and information flows are also necessary when a digital asset player performs multiple functions.

The detection and prevention market abuse such as wash trading, pump-and-dump, and market manipulation are also important. These activities have all been observed within the digital asset ecosystem. Digital asset players can use a variety of tools to monitor and detect unusual price and trade activity across and within trading platforms. They can also scrape social media to detect collusive actions.

The regulators also have a part to play to ensure that the industry participants are equipped with the necessary policies, processes, and resources in order to promote fair, efficient, and transparent markets. They should also have the ability to detect and investigate any abuse.

There are also concerns regarding financial integrity. Digital asset markets are also susceptible to abuse for illegal purposes, such as money-laundering, terrorist financing, and sanctions evasion. Data shows that the amount of illicit flows is extremely low, less than 1%. However, this activity can have a significant impact on security and economic outcomes.

Blockchain-based assets are transparent, making it easier to detect illicit activity and stop it. Each digital asset owner has the tools to monitor their exposure to illicit activity and mitigate it.

3. Consumer protection safeguards

Consumer protection safeguards aim to ensure that crypto users receive fair treatment and understand the risks and nature of the activities they engage in. Policymakers are concerned about scams and speculative trading as digital assets become more mainstream.

See also: Marc Hochstein – You Want Crypto Regulation? Opinion

Financial sector disclosures are comprehensive and designed to protect the consumer. Financial education, knowledge assessment and due diligence procedures have an important role outside of the digital assets space, and they could also be helpful in the digital assets space.

The longer that the U.S. delays in completing this task, the more other countries will progress, placing the country at a disadvantage on the global stage and putting its consumer safety at risk.