Here's the thing about good intentions. Sometimes, like in the case of social risk, you open these unintended consequences when you pave roads. These moves come as Congress begins a new bipartisan push to advance crypto legislation. Needless to say, the BITCOIN Act and the GENIUS Act are causing a lot of heartburn over in the industry. We all want to see transparency and to see the market mature. Are we really sure that this is the path that’s going to get us there? I'm not so convinced. Here are at least three ways these bills could do just the opposite and unnecessarily quash innovation. Instead, they risk crushing the progress they would like to encourage.
One-Size-Fits-All Reserve Requirements?
The GENIUS Act, as far as reserve requirements for stablecoins, seems like a good idea. Nobody wants another Terra/Luna implosion. Let's think this through: are these requirements being designed with every stablecoin in mind, or just the big players?
Or, you’re a tiny startup in an emerging market. Your objective is to create a stablecoin pegged 1:1 to the local currency, offering a better bridge to the unbanked who are cut off from regular banking. Now, all of a sudden you’re subject to the same capital reserve requirements as you know, Circle or Tether. Can you even compete? Or are we just greasing the skids to give the whole stablecoin market to a few already-established giants?
This problem is more than anti-competitive behavior. It’s about jeopardizing financial inclusion where the promise of cryptocurrency is the most positive. It’d be akin to forcing every lemonade stand to get the same kind of operating license that Coca-Cola has. The analogy may be over-the-top, but the effect is no joke.
Reporting Burdens Crush Small Businesses
The BITCOIN Act, focusing on federal Bitcoin holdings and potentially laying the groundwork for broader Bitcoin regulation, raises some serious concerns. Consider all of the new reporting requirements that would be appended to crypto firms. While transparency may be the default answer, who is being forced to carry those additional burdens?
It's not Coinbase. It's not Binance. And those tiny exchanges—the mom and pop shops—are doing really well. Independent developers are hard at work developing the next generation of DeFi projects on shoestring budgets. These businesses tend to operate on razor-thin margins. A sudden wave of complicated new reporting requirements would be the death knell for many.
Otherwise we’ll find ourselves in a system that’s only rigged to benefit the rich. This would make crypto a Wall-Street-only playground. Is that really what we want? Are we missing the whole point behind decentralization?
Innovation Pushed Offshore By Overreach
The worst case scenario might be if we impose such strict regulations that we force all this innovation to other countries. We’ve seen it play out unduly against other industries. Once the regulatory environment gets too antagonistic, companies take their ball and go home to greener pastures.
If the BITCOIN Act and the GENIUS Act create an environment where it's too expensive, too complicated, or too risky to operate a crypto business in the US, guess what? It’s those businesses that will leave and take flight to countries that treat them better and welcome their innovation. We’d be foregoing tens of thousands of jobs, billions in investment, and the chance to lead the world on this technological revolution.
This isn’t only a fiscally-based concern. It comes down to control. If we want the US to be a truly global leader in determining the future of crypto, we should avoid measures that encourage regulatory arbitrage. Or allow other countries to assume that responsibility? Nations that do not have the same value systems as us or the same appreciation for economic freedom?
Look, I'm not against regulation in principle. I share those instincts, and I am very much in favor of consumer protection and market stability. Yet, we have to be very careful about how we do this. We need to ensure that regulations are tailored to the specific risks involved, that they don't disproportionately burden small businesses, and that they don't stifle innovation.
We need to ask ourselves: Are we creating a regulatory framework that fosters growth, or one that chokes it?
Combined, the BITCOIN Act and GENIUS Act could do amazing things. If we’re not vigilant, we risk allowing them to do much more harm than good. Let's hope Congress is listening.
