Binance’s executive, Patrick Hillmann, explains the biggest threat facing cryptocurrencies at the moment.
The move by the US authorities to regulate the crypto space following a series of losses may pose a serious risk to the industry. This is the view of Patrick Hillman, the chief strategy officer of Binance. Hillman said that despite the million-dollar hacks and crashes of several crypto companies, the approach employed by the US Securities and Exchange Commission is “misguided.”
Tough regulations capable of chocking the industry
Speaking on Monday, Hillmann expressed concern about the regulator’s increasingly strict stance. He said it would lead to high market volatility capable of choking the industry.
“The U.S. has always been a place that has really fostered great innovation,” he said. “Unfortunately, I think [what] we’re seeing now is going to come at a real cost [to investors] over time.”
Regulators in the United States have ramped up enforcement activities since FTX, a cryptocurrency exchange, collapsed in 2022. The crash of the entity caused ripples within the cryptosphere because it was once the second-largest exchange by market volume.
In January, several regulators made a joint announcement warning about the risk of exposure to digital currencies. These regulators include the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency. They went further to state that banks should be wary of assets that are linked to activities in the crypto industry.
Fining Celebrities for promoting cryptocurrency projects
Since the January alert by the agencies, the SEC has handed out fines of thousands of dollars to celebrities who advertised and promoted cryptocurrencies in one form or another. The agency has also taken action against crypto-staking firms such as Kraken. Staking platforms reward users for locking up their cryptocurrencies in “pools.” Kraken, for instance, was handed a $30,000 fine for non-disclosures and disgorgement.
Tough enforcements target Exchanges
The Binance executive expressed concern over the move against the tokens of crypto exchanges by the US regulator. The SEC has also moved against some stablecoins, which act as a hedge against price volatility in the market. Stablecoins are usually pegged to the USD or assets such as gold.
Since the Terra algorithmic stablecoin, Terra USD (UST), lost its peg to the USD, regulators have been looking into the most capitalized stablecoins. Hillman is of the opinion that the overbearing stance of the regulator is a recipe for more trouble. He maintained that the stability of the crypto market depends to a large extent on the “safeguards” provided by these stablecoins. The low volatility of stablecoins gives investors confidence that they can hedge the volatility of cryptocurrencies using these pegged coins.
“When you take that away from users at a time like this, that safety net disappears,” Hilmann argued. “At the same time, we’re seeing a pressure campaign on U.S. banks to also not service crypto.” “Not only do [investors] not have the ability to move their money to a safe [place], they also aren’t able to pull it off the exchanges easily.”
Hillmann spoke after the New York financial regulator got an order stopping Paxos from minting the Binance stablecoin (BUSD). Paxos issues its stablecoin on the Ethereum blockchain. New York State regulators cited “unresolved issues related to Paxos’s oversight of its relationship with Binance,” as reason behind the crackdown.
In a February 20 comment on Twitter, Hillmann wrote,
“Rather than cracking down on the industry, we should be opening up the dialogue with major exchanges, both US and globally-based. That is in our best interest as a country if we want to continue to be a leader in the next iteration of the global economy.”
Paxos may face lawsuits for BUSD
A February 12 report said that Paxos could become a defendant in a lawsuit for violating investor protection laws. According to the Wall Street Journal, the SEC intends to file a suit against the exchange. Since the regulators started enforcement activities, the market cap of stablecoins has dropped to $12 billion. Prior to the enforcement, it was valued at over $16 billion, according to Coinmarketcap data.
The planned lawsuit against Paxos is the biggest step taken against the stablecoin market by a regulator. Some observers say that if the SEC pulls it off, the move would push the crypto market to the fringes of finance.
Rather than cracking down on the industry, we should be opening up the dialogue with major exchanges, both US and globally-based. That is in our best interest as a country if we want to continue to be a leader in the next iteration of the global economy.— Patrick Hillmann (@PRHillmann) February 20, 2023
In January, Binance said that it had issues with the collateral backing the BUSD. The admission by the exchange’s management resulted in closer scrutiny by the US regulator. Binance has announced that it is willing to reach a settlement with regulators in the US and pay fines where it has violated the law.