Crypto Assets Regulation: A Repetition of History or a New Beginning?

Recently, a piece of news has attracted widespread attention in the financial sector: a large bank is considering accepting customers' Crypto Assets as collateral for loans. This move marks the formal entry of digital assets into the traditional financial system, sparking numerous controversies and concerns.

The high volatility of Bitcoin and other crypto assets is well known, with their market fluctuations far exceeding those of traditional financial indices. Despite the many controversies, crypto assets appear to be gaining broader recognition with the support of political forces.

In recent years, the impact of the Crypto Assets industry in the political sphere has been increasing. A large amount of funding has flowed to politicians from various parties, culminating in the recently passed "Genius Act." More legislation involving other Crypto Assets is expected to emerge in the future. However, this trend may bring unintended consequences, including potential financial risks and political turmoil.

This situation inevitably brings to mind the financial environment around the year 2000. At that time, supporters of the over-the-counter derivatives market actively sought "appropriate regulation," claiming that it would promote financial innovation. However, the result was that the credit default swap market rapidly expanded in the absence of regulation, ultimately leading to the financial crisis of 2008.

Currently, the U.S. Treasury predicts that the stablecoin market size will grow tenfold in the coming years, expanding from nearly $200 billion to $2 trillion, involving multiple areas from loans to the government bond market. This rapid growth has raised concerns among some policymakers.

A senior senator pointed out that this situation is reminiscent of past financial deregulations. Lobbyists call for regulation, primarily to gain government endorsement, while politicians tend to support deregulation. This pattern can be traced back to the deregulation of derivatives in 2000 and a series of subsequent changes in financial regulation.

Despite some political figures attempting to block the passage of the Genius Act, Crypto Assets lobbying groups demonstrated strong influence through substantial financial investment. Ultimately, the act garnered enough support to be successfully passed.

This development has raised four main concerns:

First, the "Genius Act" is promoted as a measure to enhance the security of Crypto Assets, but it may not actually reduce the overall market volatility. On the contrary, it may exacerbate market fluctuations.

Secondly, against the backdrop of current economic and monetary policy uncertainty, the timing to encourage financial "innovation" does not seem appropriate. If there is a significant rise in interest rates or a market crash in the future, the Crypto Assets market may suffer more severe blows, which in turn could affect the entire financial system.

Third, although supporters claim that the bill will support the dollar and the treasury market, it may actually lead to a sell-off of treasury bonds during market downturns, triggering broader economic issues.

Finally, this relaxation of financial regulation may further deepen the public's distrust of the political system, laying hidden dangers for future political turmoil.

History tells us that the relaxation of financial regulation often leads to far-reaching political and economic consequences. In the context of current political division and economic uncertainty, we need to act cautiously to avoid repeating past mistakes.