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Global banking regulators call for toughest rules for cryptocurrencies

131 points by elorant 5y ago

chollida1 5y ago
Makes sense, an asset that has had multiple 30% dips this year alone and 5 dips of 60% in the past 10 years should probably treated as if its some what volatile:) The good news is that the people in power are treating it as an asset class and not trying to suppress it. https://twitter.com/staffordphilip/status/1402913235397922817 https://twitter.com/staffordphilip/status/140291323539792281... And with the news that Tether is holding alot of US commercial paper, crypto is starting to really cement itself into the existing financial community. Though if the report that Tether is holding as much commercial paper as claimed is true they've really put themselves on the US regulators radar. As people here are fond of pointing out, regulators jobs isn't to protect everyone, but rather to make sure markets working an orderly fashion. Anyone holding that much paper is going to be scrutinized pretty thoroughly and come done on pretty hard.
- ProjectArcturis 5y ago
  Tether is holding US commercial paper, yes, but they won't reveal WHO they've loaned to, or under what terms. Most likely, they have created new shell corporations, made sweetheart loans to them from the Tether bank account, and then had them pay out distributions to the owners. In other words, they've replaced the cash that should be backing the Tether with likely worthless IOUs. Tether is a bomb waiting to explode the crypto space.
  - gogopuppygogo 5y ago
    Tether seems like a time bomb: https://crypto-anonymous-2021.medium.com/the-bit-short-inside-cryptos-doomsday-machine-f8dcf78a64d3 https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
  - graeme 5y ago
    It’s even worse. Tether only might be holding commercial paper. They’ve lied about everything before, no one has verified their assets, and no one in the commercial paper market has heard of them, so it’s even possible the commercial paper claim is a straight up fabrication. https://www.ft.com/content/342966af-98dc-4b48-b997-38c00804270a https://www.ft.com/content/342966af-98dc-4b48-b997-38c008042...
    - ProjectArcturis 5y ago
      I've outlined a scenario where they could be telling the truth about holding commercial paper but still have stolen all the money.
      - graeme 5y ago
        It’s certainly possible. I think it’s more likely there never was any cash and they printed Tether from thin air. They surely got something for that Tether, and despite their denials I expect they have commercial paper form crypto exchanges if they have any at all. But they may simply be lying about even having commercial paper at all.
    - astoor 5y ago
      > "no one has verified their assets" It's worse than that - they were audited by Friedman LLP in 2017, but chose to suppress the full outcome: https://www.coindesk.com/tether-confirms-relationship-auditor-dissolved https://www.coindesk.com/tether-confirms-relationship-audito...
      - graeme 5y ago
        Haha and I thought I was peak pessimist. Thanks forgot that detail. Brings this Dilbert comic to mind: https://dilbert.com/strip/1995-03-14 https://dilbert.com/strip/1995-03-14
- rantwasp 5y ago
  30% dips in relation to what? 1bitcoin in 2018 == 1 bitcoin in 2020. also, there is nobody forcing banks to hold crypto as an asset. nobody.
  - deleted 5y ago
    [deleted]
- wolverine876 5y ago
  > regulators jobs isn't to protect everyone, but rather to make sure markets working an orderly fashion That's not true. As just two examples: The SEC's job is to protect investors. The Consumer Financial Protection Bureau's job is to make "banks, lenders, and other financial companies treat you fairly".[0] Some people may claim to prefer a libertarian marketplace, but that's not what the U.S. has decided upon. [0] https://www.consumerfinance.gov/ https://www.consumerfinance.gov/
vesinisa 5y ago
But wait ... I thought Bitcoin was immune to regulators?
- neilwilson 5y ago
  This is about Banks holding them as asset backing for deposits, etc. as an alternative to the traditional Bonds, Loans and Reserves. It's not about the crypto-currency operation itself. It's whether they are worth anything in banking/accounting terms.
  - chiefalchemist 5y ago
    For now. Keep in mind, the question the status quo is wanting to answer is: "We can't simple stand still and forfeit our (fiancial) power, so how can we make this work for us?" They haven't squashed because it might be a and better opportunity for them. It will be a nudge by nudge process. This is a start. Nothing is off the table for them.
    - JumpCrisscross 5y ago
      > how can we make this work for us? Which side of this debate do you think the City of London and Wall Street are on? Crypto has been a panacopia for finance.
      - gnzoidberg 5y ago
        What's a panacopia?
      - chiefalchemist 5y ago
        My point is, legislation and regulation is a function of control. The lack of such things currently either means: - They already think they have the upper hand. - Or, it's too new and they haven't sorted out which scale and how much thumb pressure to apply. But the lack of regs atm is certainly not inductive of anyone's benevolence.
- 5y ago
ProjectArcturis 5y ago
Here's what's going on here: banks use debt to increase their returns. A bank might have $100M in capital, $1B in assets, and $900M in debt. Now, to keep things from getting too crazy, there are national and international regulations limiting how much they can borrow. Those limits depend on how risky the assets are that they're buying. US government bonds? You might need to have 3 cents in capital for every dollar of T Bonds. For high quality commercial bonds, maybe 5 or 10 cents. Cryptocurrency is a new asset class, so they have to decide how much capital a bank needs to hold. Quite sensibly, given its volatility, you need $1 in capital to hold $1 in crypto. I.e. a bank cannot borrow against its crypto holdings.
- SturgeonsLaw 5y ago
  In this cheap debt environment, I'm not sure "sensible" applies to the market's mindset when it comes to leverage
- cletus 5y ago
  This. To add a little more context to this, the first banks took deposits and lent that money out to borrowers. They would keep a certain percentage of that for liquidity ie to cover withdrawals. This became viewed as overly conservative so banks started retaining a smaller percentage of the loans in hard currency and/or gold. This is the origin of the fractional reserve system. Some Luddites who often bemoan abandoning the gold standard point to this is a mistake but the last few centuries has shown this to be wildly successful. Ultimately this led to the formation of central banks (sometimes called the lenders of last resort) to, in part at least, avoid the issues of runs on individual banks. Nowadays debt tends to be securitized and not even on a bank's books anymore anyway. This is actually one of the desirable properties of a currency that cryptos (or Bitcoin at least) just doesn't have. Combine that with highly volatile values and it's a mistake (IMHO) to call cryptos "currencies". They're assets not currencies.
  - yowlingcat 5y ago
    > This is actually one of the desirable properties of a currency that cryptos (or Bitcoin at least) just doesn't have. You've got to be careful making these kinds of assertions. Maybe they'd be accurate if you put Bitcoin in a vacuum, but if you consider the entire crypto ecosystem that revolves around bitcoin, it's completely false. Not only is DeFi a burgeoning asset class, it's gotten so popular (via yield farming) that many an institutional hedge fund has gotten in on the action. The decentralized lending ecosystem in crypto is surprisingly mature. With that said, it's not inaccurate to say that by virtue of volatility and commensurate reserve requirements, bitcoin is more challenging to keep on a balance sheet, nevermind use as currency. There's also something about stablecoins that I can't quite put my finger on but which makes me nervous.
intricatedetail 5y ago
Global banking regulators need to be investigated and brought to justice.
quanticle 5y ago
However, it said looser rules could apply to stablecoins – a new form of digital asset usually pegged to the value of a traditional currency – that may require only a level of capital rules applied to traditional assets such as bonds, loans, deposits, equities or commodities. Isn't that assuming that stablecoins are inherently lower risk than Bitcoin? Why should we take that assumption at face value? This just seems like it'd offer banks a way to launder their crypto risk by funneling it through stablecoins. Then, when a big spike or drop in the value of Bitcoin causes a stablecoin to break its peg, a bunch of banks who've put their crypto assets in the stablecoin in order to take advantage of the looser rules are suddenly caught out.
- ProjectArcturis 5y ago
  Yes, and we shouldn't. Your scenario is completely plausible. Though I don't know why a bank would want to hold any significant amount of stablecoins.
- koheripbal 5y ago
  The volatility isn't the issue for the regulators. What they're worried about is the ability of countries like Iran to circumvent sanctions. My suspicion is that they will order exchanges to de-list privacy coins.
- deleted 5y ago
  [deleted]
- dmurray 5y ago
  The proposed rules require the banks to account for the credit risk of the party guaranteeing the stablecoin. So similar rules will apply to assessing a loan guaranteed by that party. I'm guessing Tether Ltd. won't fare that well on the credit risk assessment, but other institutions could.
  - quanticle 5y ago
    I'm guessing Tether Ltd. won't fare that well on the credit risk assessment, but other institutions could. Given how the credit rating agencies were more than happy to give investment grade ratings to toxic waste in the run-up to the 2007-2008 financial crisis, I'm not sure that's a safe assumption to make.
koheripbal 5y ago
Crypto allows for easy instant global money laundering and sanctions evasion, in a way that cash USD could never. It is par for the course that government regulators do not react to these threats to the global financial system until they are glaringly obvious. It's also likely that it'll take them a few more years to actually figure out how to implement this in any meaningful way. My guess would be that their first step will be to ban crypto exchanges from using privacy coins. Not sure what comes next though other than an outright ban. Bitcoin's support for atomic swaps to privacy coins might mean a forced de-listing for it as well.
stevespang 5y ago
Cat's already out of the bag . . .
iammisc 5y ago
Duh. Fiat currency (and Bitcoin is fiat) only matters insofar as you have the guns to defend it. Bitcoin has no guns, so there's no intrinsic value. It's bleak, but the value of a currency is directly proportional to the number of lives a government is willing to kill to preserve its value. The united states and Europe are willing to kill lots in their attempts to keep their currency afloat, as they've demonstrated through the centuries. Thus their currency is worth it to whomever values their life. This is not a statement of how things should be, it's a description of how they are.
- rantwasp 5y ago
  yes, through the centuries. where was bitcoin during the French Revolution? Nobody killed anybody for bitcoin during the French Revolution!
  - iammisc 5y ago
    This is a really disingenuous take on what I said. If tomorrow bitcoin were made illegal, it's value would plummet, or those holding it under the radar would have to resort to all kinds of backroom deals and money laundering attempts to hide it. This is because bitcoin cannot defend itself against the strong arm of the state.
    - rantwasp 5y ago
      lol. do you know how bitcoin work? bitcoin can definitely “defend itself”. look at what happens/happened in Venezuela. Once you no longer need to convert it to fiat it’s as bulletproof as it comes
      - iammisc 5y ago
        Unfortunately all governments of any importance tax in fiat.
smt88 5y ago
It's unbelievable how many crypto crusaders jumped into the comments without reading the article. This is not about banks asking to regulate crypto usage away. It's about reserves. This is actually more of a crypto-friendly development than I'd expect. If anything, it's a way for big banks to monopolize crypto banking by increasing the difficulty of starting a bank that holds crypto deposits.
29athrowaway 5y ago
With "fractional reserve banking", banks can create money with each loan. With bitcoin, if you want to create money, you have to work for it. Banks do not like that.
- QuadrupleA 5y ago
  With Bitcoin, if you want make a transaction in the distributed database, you have to "work" to burn an ungodly amount of electricity doing useless busywork in giant data centers across the world. It's a cancer.
villgax 5y ago
So a competitor is trying to lobby against it's own doom/inefficiency?
rawtxapp 5y ago
We are at the "then they fight you" stage. The banks have every incentive to kill crypto because if it's successful, they are going to become irrelevant similar to newspapers that lost majority of their market shares to tech disruptors. The biggest battles for Bitcoin are ahead in my opinion, but if it survives, which I'm convinced it will, it'll come out stronger than ever before.
- paulmd 5y ago
  That is not at all what the article is about. The article is about bankers deciding that banks should not be able to leverage against the value of their crypto holdings - which is perfectly sensible given how volatile they are.
  - rawtxapp 5y ago
    > Growth of crypto-assets threatens financial stability and could increase risks faced by banks, they warn > Crypto-assets have given rise to a range of concerns including consumer protection, money laundering and terrorist financing, and their carbon footprint Sounds to me, it's little more than just limiting borrowing.
- throwaway6734 5y ago
  There is no chance the US (nor China if it takes control) gives up the dominance of its currency. Both state actors have more than enough means to squash Bitcoin or any other crypto
  - rawtxapp 5y ago
    Which is why I say the toughest battles are ahead. Once US decides to use every tool in the toolbox to undermine Bitcoin, Elon's tweets are going to look like a joke. They can ban on/off-ramps, they can crater it's value by making it illegal, but they can't stop the network itself, in the same way that torrents are still very much alive today.
    - 5y ago
swiley 5y ago
Of course they would. Everyone has to use banks now for electronic payment and crypto disrupts that.
- smt88 5y ago
  This article has nothing to do with banks discouraging crypto use. It's just about how existing regulations related to risk are applied to banks' crypto holdings.
  - hanniabu 5y ago
    I think the point is that if the decentralized economies are used then there's no need for centralized entities like banks. Aka don't need to regulate the banks holdings if they don't act centrally.
    - smt88 5y ago
      Every example from history suggests that decentralization never erases middlemen. How many people self-host crypto wallets? Why does Coinbase exist? As long as things are being held, transferred, and sold, banks can build the expected financial abstractions on top of them and take a cut. There is nothing about crypto that will kill any big bank.
      - xboxnolifes 5y ago
        It may not kill banks, but it makes alternatives possible. I want decentralization for the same reason I try to avoid vendor lock-in. If the vendor I choose starts to go against my needs, I can choose a different vendor. If all vendors go against my needs, I can self-host. I cannot currently self-host online transactions. I have no idea how the future of cryptocurrency will play out, but I'm interested in watching.
yawaworht1978 5y ago
Assuming the insane scenario that Bitcoin becomes the world's one currency. 21 million Bitcoin are printed,most end up in the hands of few. How do you stimulate economic growth?
- barnabee 5y ago
  Token issuance is analogous to a loan economically (it creates new money supply) and in terms of its ability to finance economic growth. Anyone can do it, which is a massive improvement on access to finance today (or, in some countries, would be if not for outdated securities regulation). Given that each token is traceable, it is very clear what risk one is holding if one holds a basket of tokens, much more so than for holders of bank equity or securitised loans.
RichardHeart 5y ago
The idea is to replace banks. You can trust math better than men. Not your keys, not your coins, banks are the opposite of you being free, they take your money while you beg them to access it. Modern legacy finance is disgusting. Maximum fees, minimum choice, minimum convience. Fewer hours open and even fewer ATMS every year.
randomperson_24 5y ago
They are just afraid banks will be running out of business with exorbitant fees and useless charges. They will need to evolve otherwise lots of other startups will be replacing their need.
runbathtime 5y ago
A stablecoin issuer that makes claims about converting the tokens for dollars is a money transmitter (Circle), in that like a bank they receive deposits/reserves (actual dollars). A bank receives payment instructions through checks/etc to send 'electronic money' to someone else, based on real dollar deposits. A stablecoin issuer that makes claims to token holders that they can exchange the token for a dollar is doing the same thing as a bank just a different way- the way 'electronic money' is sent is through the token on a blockhain, p2p. They do not receive payment instructions, but they do custody the dollars that can be converted on presentation of tokens. But because they issued this token, that can be moved p2p, this token represents a claim on those dollars sitting at the stablecoin issuer. So the token/blockchain is moving funds electronically. Other cryptos do not work this way, since they aren't convertible to anything. I would say any issuer of any token that makes claims to exchange some type of reserve (another crypto) is also a money transmitter by the same logic. Tether says it doesn't have to exchange tokens for dollars legally, but that doesn't mean that they don't ever. If there is no legal claim on the reserves for token holders then Tether isn't responsible for money transmission when tether is sent p2p. Tether is a money transmitter though when they sell tether for dollars, because that is a business. Cirlce (USDC) issuer is a money transmitter, but they can only do KYC/AML directly on the front (who they sell to) and on the back (who presents token back for dollars). They can't do KYC/AML in the middle, where people can do p2p hops. Even though these people are not getting 'real dollars', the token itself is the technology that allows for money transmission and represents dollars held. What about cash in the bank? When you withdraw cash you give it to anyone and it can be accepted and there is no KYC/AML. The difference is there is no counterparty to cash dollars. They are real, they are money, you can hold them in your hand. They are different than your electronic account balance at the bank, because it is virtual (a representation) and because it is a liability of the bank to you. Just because USDC (the representation) can be withdrawn into your control- meaning you do not need Circle's approval to send a payment p2p (although they control the token so do have some authority), that is not the same thing as withdrawing cash dollars. USDC is representative of cash dollars, not cash dollars themselves, thus do not have the same properties as dollars. Dollars (cash) is real money with no counter-party risk. You can give it to anyone and the transaction is settled immediately. Banks hold financial assets, financial assets that are intangible always have counter-party risk. Someone who has USDC can send it to anyone too, but it hasn't been settled, because the dollars are sitting at Circle, the issuer. Because the real dollars are always sitting with the issuer, they act just like a bank where anytime you move money from your account to someone else electronically, everyone, everytime is KYC'd/AML'd. Confusion is around separating the technology employed to move real money, which can be called electronic money, and real money. Stablecoins are just an a new technology to move electronic money, not real money. In fact, all cryptos are a new technology to move representations of something, usually dollars/currency (if it is has a price), but they are not real money themselves. There is no way to kyc/aml p2p crypto hops for a central stablecoin issuer, thus violating their own money transmission requirements and this is because the tokens are mere representations of real dollars, they have counter-party risk, they are a financial asset under the issuer's control. Even with additional regulations, they can never mold this behavior of the nature of p2p tokens under existing money transmission rules. It seems to me eventually unknown p2p transactions will be banned, and all public addresses will have to be identified by Circle, or else they will just 'delete' those coins, so it can be done, and if it can be done, it will be done. Stablecoins are only beneficial if that does not happen. Tether is your best hope of keeping status quo.

131 points by elorant 5y ago

Makes sense, an asset that has had multiple 30% dips this year alone and 5 dips of 60% in the past 10 years should probably treated as if its some what volatile:) The good news is that the people in power are treating it as an asset class and not trying to suppress it. https://twitter.com/staffordphilip/status/1402913235397922817 https://twitter.com/staffordphilip/status/140291323539792281... And with the news that Tether is holding alot of US commercial paper, crypto is starting to really cement itself into the existing financial community. Though if the report that Tether is holding as much commercial paper as claimed is true they've really put themselves on the US regulators radar. As people here are fond of pointing out, regulators jobs isn't to protect everyone, but rather to make sure markets working an orderly fashion. Anyone holding that much paper is going to be scrutinized pretty thoroughly and come done on pretty hard.

ProjectArcturis 5y ago
Tether is holding US commercial paper, yes, but they won't reveal WHO they've loaned to, or under what terms. Most likely, they have created new shell corporations, made sweetheart loans to them from the Tether bank account, and then had them pay out distributions to the owners. In other words, they've replaced the cash that should be backing the Tether with likely worthless IOUs. Tether is a bomb waiting to explode the crypto space.
- gogopuppygogo 5y ago
  Tether seems like a time bomb: https://crypto-anonymous-2021.medium.com/the-bit-short-inside-cryptos-doomsday-machine-f8dcf78a64d3 https://crypto-anonymous-2021.medium.com/the-bit-short-insid...
- graeme 5y ago
  It’s even worse. Tether only might be holding commercial paper. They’ve lied about everything before, no one has verified their assets, and no one in the commercial paper market has heard of them, so it’s even possible the commercial paper claim is a straight up fabrication. https://www.ft.com/content/342966af-98dc-4b48-b997-38c00804270a https://www.ft.com/content/342966af-98dc-4b48-b997-38c008042...
  - ProjectArcturis 5y ago
    I've outlined a scenario where they could be telling the truth about holding commercial paper but still have stolen all the money.
    - graeme 5y ago
      It’s certainly possible. I think it’s more likely there never was any cash and they printed Tether from thin air. They surely got something for that Tether, and despite their denials I expect they have commercial paper form crypto exchanges if they have any at all. But they may simply be lying about even having commercial paper at all.
  - astoor 5y ago
    > "no one has verified their assets" It's worse than that - they were audited by Friedman LLP in 2017, but chose to suppress the full outcome: https://www.coindesk.com/tether-confirms-relationship-auditor-dissolved https://www.coindesk.com/tether-confirms-relationship-audito...
    - graeme 5y ago
      Haha and I thought I was peak pessimist. Thanks forgot that detail. Brings this Dilbert comic to mind: https://dilbert.com/strip/1995-03-14 https://dilbert.com/strip/1995-03-14
rantwasp 5y ago
30% dips in relation to what? 1bitcoin in 2018 == 1 bitcoin in 2020. also, there is nobody forcing banks to hold crypto as an asset. nobody.
- deleted 5y ago
  [deleted]
wolverine876 5y ago
> regulators jobs isn't to protect everyone, but rather to make sure markets working an orderly fashion That's not true. As just two examples: The SEC's job is to protect investors. The Consumer Financial Protection Bureau's job is to make "banks, lenders, and other financial companies treat you fairly".[0] Some people may claim to prefer a libertarian marketplace, but that's not what the U.S. has decided upon. [0] https://www.consumerfinance.gov/ https://www.consumerfinance.gov/

vesinisa 5y ago

But wait ... I thought Bitcoin was immune to regulators?

neilwilson 5y ago
This is about Banks holding them as asset backing for deposits, etc. as an alternative to the traditional Bonds, Loans and Reserves. It's not about the crypto-currency operation itself. It's whether they are worth anything in banking/accounting terms.
- chiefalchemist 5y ago
  For now. Keep in mind, the question the status quo is wanting to answer is: "We can't simple stand still and forfeit our (fiancial) power, so how can we make this work for us?" They haven't squashed because it might be a and better opportunity for them. It will be a nudge by nudge process. This is a start. Nothing is off the table for them.
  - JumpCrisscross 5y ago
    > how can we make this work for us? Which side of this debate do you think the City of London and Wall Street are on? Crypto has been a panacopia for finance.
    - gnzoidberg 5y ago
      What's a panacopia?
    - chiefalchemist 5y ago
      My point is, legislation and regulation is a function of control. The lack of such things currently either means: - They already think they have the upper hand. - Or, it's too new and they haven't sorted out which scale and how much thumb pressure to apply. But the lack of regs atm is certainly not inductive of anyone's benevolence.
5y ago

ProjectArcturis 5y ago

Here's what's going on here: banks use debt to increase their returns. A bank might have $100M in capital, $1B in assets, and $900M in debt. Now, to keep things from getting too crazy, there are national and international regulations limiting how much they can borrow. Those limits depend on how risky the assets are that they're buying. US government bonds? You might need to have 3 cents in capital for every dollar of T Bonds. For high quality commercial bonds, maybe 5 or 10 cents. Cryptocurrency is a new asset class, so they have to decide how much capital a bank needs to hold. Quite sensibly, given its volatility, you need $1 in capital to hold $1 in crypto. I.e. a bank cannot borrow against its crypto holdings.

SturgeonsLaw 5y ago
In this cheap debt environment, I'm not sure "sensible" applies to the market's mindset when it comes to leverage
cletus 5y ago
This. To add a little more context to this, the first banks took deposits and lent that money out to borrowers. They would keep a certain percentage of that for liquidity ie to cover withdrawals. This became viewed as overly conservative so banks started retaining a smaller percentage of the loans in hard currency and/or gold. This is the origin of the fractional reserve system. Some Luddites who often bemoan abandoning the gold standard point to this is a mistake but the last few centuries has shown this to be wildly successful. Ultimately this led to the formation of central banks (sometimes called the lenders of last resort) to, in part at least, avoid the issues of runs on individual banks. Nowadays debt tends to be securitized and not even on a bank's books anymore anyway. This is actually one of the desirable properties of a currency that cryptos (or Bitcoin at least) just doesn't have. Combine that with highly volatile values and it's a mistake (IMHO) to call cryptos "currencies". They're assets not currencies.
- yowlingcat 5y ago
  > This is actually one of the desirable properties of a currency that cryptos (or Bitcoin at least) just doesn't have. You've got to be careful making these kinds of assertions. Maybe they'd be accurate if you put Bitcoin in a vacuum, but if you consider the entire crypto ecosystem that revolves around bitcoin, it's completely false. Not only is DeFi a burgeoning asset class, it's gotten so popular (via yield farming) that many an institutional hedge fund has gotten in on the action. The decentralized lending ecosystem in crypto is surprisingly mature. With that said, it's not inaccurate to say that by virtue of volatility and commensurate reserve requirements, bitcoin is more challenging to keep on a balance sheet, nevermind use as currency. There's also something about stablecoins that I can't quite put my finger on but which makes me nervous.

intricatedetail 5y ago

Global banking regulators need to be investigated and brought to justice.

quanticle 5y ago

However, it said looser rules could apply to stablecoins – a new form of digital asset usually pegged to the value of a traditional currency – that may require only a level of capital rules applied to traditional assets such as bonds, loans, deposits, equities or commodities. Isn't that assuming that stablecoins are inherently lower risk than Bitcoin? Why should we take that assumption at face value? This just seems like it'd offer banks a way to launder their crypto risk by funneling it through stablecoins. Then, when a big spike or drop in the value of Bitcoin causes a stablecoin to break its peg, a bunch of banks who've put their crypto assets in the stablecoin in order to take advantage of the looser rules are suddenly caught out.

ProjectArcturis 5y ago
Yes, and we shouldn't. Your scenario is completely plausible. Though I don't know why a bank would want to hold any significant amount of stablecoins.
koheripbal 5y ago
The volatility isn't the issue for the regulators. What they're worried about is the ability of countries like Iran to circumvent sanctions. My suspicion is that they will order exchanges to de-list privacy coins.
deleted 5y ago
[deleted]
dmurray 5y ago
The proposed rules require the banks to account for the credit risk of the party guaranteeing the stablecoin. So similar rules will apply to assessing a loan guaranteed by that party. I'm guessing Tether Ltd. won't fare that well on the credit risk assessment, but other institutions could.
- quanticle 5y ago
  I'm guessing Tether Ltd. won't fare that well on the credit risk assessment, but other institutions could. Given how the credit rating agencies were more than happy to give investment grade ratings to toxic waste in the run-up to the 2007-2008 financial crisis, I'm not sure that's a safe assumption to make.

koheripbal 5y ago

Crypto allows for easy instant global money laundering and sanctions evasion, in a way that cash USD could never. It is par for the course that government regulators do not react to these threats to the global financial system until they are glaringly obvious. It's also likely that it'll take them a few more years to actually figure out how to implement this in any meaningful way. My guess would be that their first step will be to ban crypto exchanges from using privacy coins. Not sure what comes next though other than an outright ban. Bitcoin's support for atomic swaps to privacy coins might mean a forced de-listing for it as well.

stevespang 5y ago

Cat's already out of the bag . . .

iammisc 5y ago

Duh. Fiat currency (and Bitcoin is fiat) only matters insofar as you have the guns to defend it. Bitcoin has no guns, so there's no intrinsic value. It's bleak, but the value of a currency is directly proportional to the number of lives a government is willing to kill to preserve its value. The united states and Europe are willing to kill lots in their attempts to keep their currency afloat, as they've demonstrated through the centuries. Thus their currency is worth it to whomever values their life. This is not a statement of how things should be, it's a description of how they are.

rantwasp 5y ago
yes, through the centuries. where was bitcoin during the French Revolution? Nobody killed anybody for bitcoin during the French Revolution!
- iammisc 5y ago
  This is a really disingenuous take on what I said. If tomorrow bitcoin were made illegal, it's value would plummet, or those holding it under the radar would have to resort to all kinds of backroom deals and money laundering attempts to hide it. This is because bitcoin cannot defend itself against the strong arm of the state.
  - rantwasp 5y ago
    lol. do you know how bitcoin work? bitcoin can definitely “defend itself”. look at what happens/happened in Venezuela. Once you no longer need to convert it to fiat it’s as bulletproof as it comes
    - iammisc 5y ago
      Unfortunately all governments of any importance tax in fiat.

smt88 5y ago

It's unbelievable how many crypto crusaders jumped into the comments without reading the article. This is not about banks asking to regulate crypto usage away. It's about reserves. This is actually more of a crypto-friendly development than I'd expect. If anything, it's a way for big banks to monopolize crypto banking by increasing the difficulty of starting a bank that holds crypto deposits.

29athrowaway 5y ago

With "fractional reserve banking", banks can create money with each loan. With bitcoin, if you want to create money, you have to work for it. Banks do not like that.

QuadrupleA 5y ago
With Bitcoin, if you want make a transaction in the distributed database, you have to "work" to burn an ungodly amount of electricity doing useless busywork in giant data centers across the world. It's a cancer.

villgax 5y ago

So a competitor is trying to lobby against it's own doom/inefficiency?

rawtxapp 5y ago

We are at the "then they fight you" stage. The banks have every incentive to kill crypto because if it's successful, they are going to become irrelevant similar to newspapers that lost majority of their market shares to tech disruptors. The biggest battles for Bitcoin are ahead in my opinion, but if it survives, which I'm convinced it will, it'll come out stronger than ever before.

paulmd 5y ago
That is not at all what the article is about. The article is about bankers deciding that banks should not be able to leverage against the value of their crypto holdings - which is perfectly sensible given how volatile they are.
- rawtxapp 5y ago
  > Growth of crypto-assets threatens financial stability and could increase risks faced by banks, they warn > Crypto-assets have given rise to a range of concerns including consumer protection, money laundering and terrorist financing, and their carbon footprint Sounds to me, it's little more than just limiting borrowing.
throwaway6734 5y ago
There is no chance the US (nor China if it takes control) gives up the dominance of its currency. Both state actors have more than enough means to squash Bitcoin or any other crypto
- rawtxapp 5y ago
  Which is why I say the toughest battles are ahead. Once US decides to use every tool in the toolbox to undermine Bitcoin, Elon's tweets are going to look like a joke. They can ban on/off-ramps, they can crater it's value by making it illegal, but they can't stop the network itself, in the same way that torrents are still very much alive today.
  - 5y ago

swiley 5y ago

Of course they would. Everyone has to use banks now for electronic payment and crypto disrupts that.

smt88 5y ago
This article has nothing to do with banks discouraging crypto use. It's just about how existing regulations related to risk are applied to banks' crypto holdings.
- hanniabu 5y ago
  I think the point is that if the decentralized economies are used then there's no need for centralized entities like banks. Aka don't need to regulate the banks holdings if they don't act centrally.
  - smt88 5y ago
    Every example from history suggests that decentralization never erases middlemen. How many people self-host crypto wallets? Why does Coinbase exist? As long as things are being held, transferred, and sold, banks can build the expected financial abstractions on top of them and take a cut. There is nothing about crypto that will kill any big bank.
    - xboxnolifes 5y ago
      It may not kill banks, but it makes alternatives possible. I want decentralization for the same reason I try to avoid vendor lock-in. If the vendor I choose starts to go against my needs, I can choose a different vendor. If all vendors go against my needs, I can self-host. I cannot currently self-host online transactions. I have no idea how the future of cryptocurrency will play out, but I'm interested in watching.

yawaworht1978 5y ago

Assuming the insane scenario that Bitcoin becomes the world's one currency. 21 million Bitcoin are printed,most end up in the hands of few. How do you stimulate economic growth?

barnabee 5y ago
Token issuance is analogous to a loan economically (it creates new money supply) and in terms of its ability to finance economic growth. Anyone can do it, which is a massive improvement on access to finance today (or, in some countries, would be if not for outdated securities regulation). Given that each token is traceable, it is very clear what risk one is holding if one holds a basket of tokens, much more so than for holders of bank equity or securitised loans.

RichardHeart 5y ago

The idea is to replace banks. You can trust math better than men. Not your keys, not your coins, banks are the opposite of you being free, they take your money while you beg them to access it. Modern legacy finance is disgusting. Maximum fees, minimum choice, minimum convience. Fewer hours open and even fewer ATMS every year.

randomperson_24 5y ago

They are just afraid banks will be running out of business with exorbitant fees and useless charges. They will need to evolve otherwise lots of other startups will be replacing their need.

runbathtime 5y ago

A stablecoin issuer that makes claims about converting the tokens for dollars is a money transmitter (Circle), in that like a bank they receive deposits/reserves (actual dollars). A bank receives payment instructions through checks/etc to send 'electronic money' to someone else, based on real dollar deposits. A stablecoin issuer that makes claims to token holders that they can exchange the token for a dollar is doing the same thing as a bank just a different way- the way 'electronic money' is sent is through the token on a blockhain, p2p. They do not receive payment instructions, but they do custody the dollars that can be converted on presentation of tokens. But because they issued this token, that can be moved p2p, this token represents a claim on those dollars sitting at the stablecoin issuer. So the token/blockchain is moving funds electronically. Other cryptos do not work this way, since they aren't convertible to anything. I would say any issuer of any token that makes claims to exchange some type of reserve (another crypto) is also a money transmitter by the same logic. Tether says it doesn't have to exchange tokens for dollars legally, but that doesn't mean that they don't ever. If there is no legal claim on the reserves for token holders then Tether isn't responsible for money transmission when tether is sent p2p. Tether is a money transmitter though when they sell tether for dollars, because that is a business. Cirlce (USDC) issuer is a money transmitter, but they can only do KYC/AML directly on the front (who they sell to) and on the back (who presents token back for dollars). They can't do KYC/AML in the middle, where people can do p2p hops. Even though these people are not getting 'real dollars', the token itself is the technology that allows for money transmission and represents dollars held. What about cash in the bank? When you withdraw cash you give it to anyone and it can be accepted and there is no KYC/AML. The difference is there is no counterparty to cash dollars. They are real, they are money, you can hold them in your hand. They are different than your electronic account balance at the bank, because it is virtual (a representation) and because it is a liability of the bank to you. Just because USDC (the representation) can be withdrawn into your control- meaning you do not need Circle's approval to send a payment p2p (although they control the token so do have some authority), that is not the same thing as withdrawing cash dollars. USDC is representative of cash dollars, not cash dollars themselves, thus do not have the same properties as dollars. Dollars (cash) is real money with no counter-party risk. You can give it to anyone and the transaction is settled immediately. Banks hold financial assets, financial assets that are intangible always have counter-party risk. Someone who has USDC can send it to anyone too, but it hasn't been settled, because the dollars are sitting at Circle, the issuer. Because the real dollars are always sitting with the issuer, they act just like a bank where anytime you move money from your account to someone else electronically, everyone, everytime is KYC'd/AML'd. Confusion is around separating the technology employed to move real money, which can be called electronic money, and real money. Stablecoins are just an a new technology to move electronic money, not real money. In fact, all cryptos are a new technology to move representations of something, usually dollars/currency (if it is has a price), but they are not real money themselves. There is no way to kyc/aml p2p crypto hops for a central stablecoin issuer, thus violating their own money transmission requirements and this is because the tokens are mere representations of real dollars, they have counter-party risk, they are a financial asset under the issuer's control. Even with additional regulations, they can never mold this behavior of the nature of p2p tokens under existing money transmission rules. It seems to me eventually unknown p2p transactions will be banned, and all public addresses will have to be identified by Circle, or else they will just 'delete' those coins, so it can be done, and if it can be done, it will be done. Stablecoins are only beneficial if that does not happen. Tether is your best hope of keeping status quo.