Former CFTC Chairman Chris Giancarlo said delaying the Digital Asset Market Clarity Act could hurt banks more than cryptocurrency companies, because cryptocurrency companies can always move to other countries if the rules are unclear, while banks remain stuck.
According to Paul Grewal, chief legal officer at Coinbase, in an interview, lawmakers may soon find a compromise on the issue of stablecoin rewards, but the bill still has to make it through the Senate for a final vote.
Banks face more risks due to the discontinuation of the law of clarity
Chris Giancarlo said financial institutions need the Clarity Act more than people think because cryptocurrency companies will continue to expand and thrive outside the United States, while banks lack the same freedom.
Countries like the UAE and Singapore have favorable laws for digital assets and blockchain companies, which attracts cryptocurrency companies to move their offices, teams, and operations abroad when… US rules Slow or unclear.
However, as Giancarlo said, banks are “trapped” in the system because they must follow strict financial laws, capital and lending rules, and many other regulations that vary from country to country. So moving to another country requires new licences, approvals, regulations and customers, which is very difficult and expensive.
This situation makes the Clarity Law especially important for banks, because unlike cryptocurrency companies that operate online and can operate in other favorable countries, banks must wait for clear laws to avoid risks. The only problem is that the longer they wait, the more they will fall behind in blockchain technology as the rest of the world moves on without them.
Likewise, banks are well aware of the potential that blockchain technology holds for the future of payments, settlements, loans, asset trading, identity systems, and many other financial services. This is one of the main reasons why financial institutions do not want to be left out of the equation.
However, they need clear rules before they can adopt new technology, and if cryptocurrency companies can provide these financial services but banks cannot, customers will slowly move their deposits to cryptocurrency platforms. As a result, financial institutions will lose business opportunities and customers over time, resulting in lower revenues and growth.
Regulations are slowing down large investors from using digital assets
The dispute over stablecoins between banks and cryptocurrency companies is the main reason the Clarity Act has not been passed yet, because on the one hand, banks say that interest rates on stablecoins will prompt people to move their deposits from banks to cryptocurrency exchanges.
On the other hand, cryptocurrency companies argue that banning rewards will eliminate competition, as users want options, and such a restriction will certainly limit innovation.
They also say that users continue to keep their money in bank accounts alongside stablecoins without ditching traditional banking altogether, so there is no clear evidence of deposit flight.
The dispute has led major investors, including pension funds, hedge funds and mutual funds, to stop investing in digital assets due to a lack of clear rules, creating risks and opportunities for investors.
If the law of clarity continues to stall, bank stocks will face enormous pressure, as investors will notice missed growth opportunities in digital asset financing. Meanwhile, institutional adoption will spread overseas as cryptocurrency companies continue to grow and institutional investors move their funds outside the US.
Representatives from the cryptocurrency and banking sectors will meet with legislative staff on Thursday and Friday to review updated compromise language on stablecoin return rules in the Market Structure Bill.
The compromise, led by Sens. Angela Alsobrooks (D-Md.) and Thom Tillis (R.N.C.), was shared for the first time with industry stakeholders last week. It prohibits returns based solely on stablecoin holdings but allows payouts linked to specific activities – a point that has raised concerns within the cryptocurrency sector.
Investors are closely monitoring the regulatory process and looking for opportunities to invest in banks that are successfully implementing blockchain technology within companies, capitalizing on the expansion of cryptocurrencies abroad, or investing in new blockchain technology infrastructure.
While negotiations are ongoing. Coinbase Chief Legal Officer Paul Grewal said lawmakers may soon reach a compromise that ends months of delay. However, the law will need to pass through the Senate to become a full legal framework.
Until then, banks will remain vulnerable due to ongoing uncertainty, while cryptocurrency companies continue to expand their global operations.
