BankThink

Time for U.S. to lead the way in crypto regulation

Thirteen years ago — on Jan. 3, 2009, at 1:15 p.m. — Bitcoin’s genesis block was mined. In that “block zero” of the chain, Satoshi, the pseudonymous creator of Bitcoin, embedded a cryptic time capsule of sorts: a news article about the government bailout of big banks during the 2008 financial crisis. In January of 2022, this message-in-a-block continues to serve as a guiding compass to our industry.

But how you interpret Satoshi’s message is a bit like reading tea leaves. Some in the crypto community have seen it as a call to arms against a broken system. Others read it with more nuance — a reminder about how much can go wrong when financial institutions become too powerful, as well as a warning to regulators about the need for vigilance and commitment to the public interest.

For me, Satoshi’s message is deeply personal. When I see Bitcoin’s genesis block 13 years later, I still see my parents — working-class factory workers in rural Indiana who struggled with financial hardship in the 2008 crisis. I see the fundamental need to learn from that moment to create a financial system that is more decentralized and transparent. And I see the need for appropriate regulatory oversight to protect ordinary Americans.

A better financial system and effective regulatory oversight aren’t mutually exclusive; I believe to my core that the best way to achieve the former is by volunteering for the latter. It’s why, when I co-founded Anchorage Digital Bank in San Francisco, we committed from day one to being regulated at the highest level we could — a commitment we lived up to one year ago, on Jan. 13, 2021, when we made history as the first digital asset bank to be granted a conditional charter from the Office of the Comptroller of the Currency.

We applied for that charter fully recognizing that digital assets are inherently different from fiat currencies, stocks, and other financial instruments. But we did so also recognizing that such novel technologies can fit within existing regulatory regimes, so long as those regulators come to the table with the same spirit of innovation as the assets they’re overseeing.

And while crypto is new, this kind of regulatory innovation in the United States is not.

When technological breakthroughs in food, medicine, and consumer products emerged in the late 19th and early 20th centuries, it led to vast benefits for consumers and robust economic growth, but also created entirely new problems around safety, fraudulent marketing and more. Rather than relying upon existing regulatory tools, the reformers of that era established the Food and Drug Administration, in 1906, and the Federal Trade Commission, in 1914, as entirely new solutions to these new challenges.

Similarly, the birth of the modern internet spurred Congress to pass the Telecommunications Act of 1996 and the Digital Millennium Copyright Act of1998, which established a whole new set of rules for the emerging digital age.

In all of these cases, the hard work of creating government-driven regulatory innovation then set the stage for decades of market-driven economic innovation, while maintaining new protections for individual consumers and society as a whole.

Today, crypto’s immense promise should trigger yet another age of regulatory innovation. As Satoshi alluded to on block zero, the consequences of not doing so can’t be ignored.

Getting crypto regulation right is critical, not only on Wall Street, but on Main Street. By leveraging the vast power of a decentralized network of computers, blockchain technology — which underpins both cryptocurrency and financial services innovations — maintains publicly distributed ledgers that are generally invulnerable to manipulation, operate 24/7, and cost significantly less than similar financial services. These advantages offer newfound financial autonomy and access to Americans — particularly those who have historically been underserved by traditional banking.

And the use of blockchain in financial systems is just the tip of the iceberg. Looking ahead, there is an array of potential use cases, such as secure electronic medical records; more inclusive real estate ownership and investment; and the creation of virtual environments (sometimes called metaverses) that allow artists and other creators to more directly draw value from their work.

But this Cambrian-explosion-in-waiting depends on people making investment bets on radical new ideas, as well as expanding public participation. Neither of these things can happen at the required scale without the trust and confidence that comes with appropriate regulation.

An end-of-year survey Anchorage conducted with polling firm, YouGov, found that respondents believe that more regulatory oversight of crypto will lead to greater public acceptance — by a 26-point margin. Similarly, by a 2-to-1 margin, respondents agreed that OCC oversight of digital asset banks is a step in the right direction for the U.S. economy.

Washington is taking notice. The Biden Administration has tasked the Presidential Working Group with exploring the regulation of stablecoins; a recent survey of Congressional staffers found crypto regulation to be a top priority for 2022; and industry participants are actively engaged with the policymakers, offering constructive ideas that deserve consideration.

The intensifying interest at the highest levels of government shows that, for the first time, regulatory clarity is within reach. But it will require both the legislative and executive branches to keep an open mind to the potential we see in the private sector. Likewise, the crypto community needs to be willing to work hand-in-hand with the federal government.

None of this will be easy, but the stakes couldn’t be higher. The country that gets regulation right first will benefit from rapid business and job creation, attract the best and brightest minds from around the world, pull in capital investment, and set the standard other countries will follow.

The U.S. has seen this movie before. For more than 150 years, America’s leadership set the stage for unlocking the potential of one technological revolution after another, from the internal combustion engine to space exploration to the internet. This is our moment to heed Satoshi’s message and unlock one more revolution — for the systemic financial benefit of generations to come. Let’s get it right.

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Politics and policy Digital currencies Cryptocurrency
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