An illustration shows the USD Coin logo displayed on a smartphone in Suqian, China, on March 13, 2025. (Photo Illustration by Costfoto/NurPhoto via Getty Images)
NurPhoto via Getty Images
Travis Kalanick didn’t need a law, or regulatory imprimatur. The Uber founder just did. And for that we should all be grateful. Kalanick provided a service without political approval that soon became too popular for politicians to regulate out of existence.
Kalanick’s remarkable achievements raise questions about the cryptocurrency industry. It seeks laws and regulatory imprimatur, and bills them as necessary for the growth of the industry. Never explained is why. If the various digital monies, including the most circulated one (stablecoins) are as revolutionary and life-enhancing as their proponents claim, they shouldn’t require Congress’s approval through the Clarity Act. Only for the story to get worse.
The problem with an appeal for legal and regulatory certainty is that the latter sets the stage for much more legal and regulatory oversight in the future. This is vivified by the Clarity Act itself. Which requires a digression.
One year ago, Fed fund futures were predicting a Fed funds rate of 2.6% through the end of 2026. The latter was rooted in expectations that President Trump, in choosing a successor for Jerome Powell at the Fed, would pick someone who would immediately begin lowering the Fed funds rate aggressively. One year later, Fed fund futures are predicting at least one rate increase.
What about 5-year Treasury notes? One year ago, they were yielding 3.59% versus 4.78% today. The lesson? Markets are unpredictable, including markets for seemingly vanilla concepts. Why the digression?
It’s simple. The crypto industry seeks banking rights through the Clarity Act. While the latter prohibits “any form of interest or yield” on stablecoin holdings, particularly those related to stablecoin balances held, it’s a known quantity that the wording in the Act is vague enough that the prohibitions will be easily evaded through cash back, rebates, low-interest loans, and myriad other perks. Translated, crypto exchanges want to be banks minus the myriad rules and regulations that banks endure.
These same exchanges justify their desire to act as bankers of stablecoin holdings because they’re not taking any notable risks: stablecoins will be backed 1:1 with the dollars from which they derive their value, and the “rewards” (yes, interest…) the exchanges will pay on stablecoin deposits will be funded by the parking of dollars in allegedly riskless short-term Treasury notes. See above as a way of grasping the obvious flaw in the crypto plan.
As we see with the Fed funds rate, along with short-term Treasuries most sensitive to movements in the rate, there’s nothing riskless or certain about either. Quite the opposite as the volatility of Fed funds and Treasury notes reveal.
About what you’ve read, it’s not a call for more regulation of banks or cryptocurrency exchanges. In an ideal world, crypto exchanges and digital currencies would prove their market worth in the marketplace (or not) against unshackled banks. Alas, the world is not perfect, at which point crypto exchanges seek a law allowing them to bank without being banks. All of this based on a contention that their banking practices are riskless.
Except they’re not riskless. See above once again. See the volatile dollar itself. These truths are a problem for the crypto and banking industries, thus the problem with the Clarity Act. It will not stop there.
Due to the risky nature of what crypto exchanges want to do, there will be blowups. That on its own is ok, but not the more stringent regulations that will follow the blowups. To spare the crypto industry and banks from more stringent future rules, the Clarity Act shouldn’t pass in its present form now.
Leave a comment