Exploring transformation of value in the digital age
By Michael J. Casey, Chief Content Officer
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Sadly, I must open up this week’s newsletter on a down note.
On Monday, CoinDesk made the necessary but extremely difficult decision to let go of 24 colleagues — the bulk of them from our editorial operations — to reduce costs in the face of a brutally challenging market for crypto media revenue. Every one of those people was a vital contributor to the high standards of journalism that have made CoinDesk a household name in the world of crypto.
They helped us win awards — a Polk award, a New York Press Club award and, just this week, a finalist listing for this year’s Loeb awards. They contributed to the best “play for each other” spirit I’ve ever encountered in a newsroom. They made working at CoinDesk exciting and rewarding. They are all, already, sorely missed. I wish them all the very best and hope that one day I have the pleasure of working with some or all of them again.
Also, another downer: This will be the last Money Reimagined for 2023. I’m putting the newsletter on hiatus to free up time to write a book – more details on that later – and to address the challenge of thinner staffing resources at CoinDesk. It will resume publication in January.
My weekly Money Reimagined podcast, with Sheila Warren, will continue, however. This week, we feature a conversation with Frank McCourt, the construction magnate, philanthropist and founder of Project Liberty, an initiative aimed at fixing a broken internet. Frank, who is co-authoring the book I mentioned above, makes the compelling point that decentralized storage solutions will allow society to break its toxic dependence on large, data-hogging internet platforms.
As Congress Bickers, the World Moves On
(Alex Wong/Getty Images)
As a divided Congress readies to vote on – and quite possibly kill – a new bill that would regulate stablecoins, it’s worth reflecting on how far ahead of the U.S. other jurisdictions are in this process and what the United States’ laggard status might mean for the dollar’s place in the future of money.
The Monetary Authority of Singapore this week released a new regulatory framework for stablecoins that, among other rules, imposes minimum capital requirements on issuers. Many see the new rules creating clarity and setting the generally crypto-friendly city-state up as a hub for these increasingly popular crypto payments instruments.
Also from Singapore, but executed in Switzerland, former Singaporean parliamentarian Calvin Cheng launched stablecoins pegged to the Swiss franc and the euro, according to a press release Tuesday. His company, Anchored Coins, is incorporated in Zug and, as a licensed member of the country’s VQF self-regulatory organization, is authorized to issue the coins under regulations established by the Swiss Financial Market Supervisory Authority, or FINMA.
The Bermuda Monetary Authority has had a licensing system for digital asset companies since 2018. In December 2022, it issued the island territory’s first license to Jewel Bank, allowing it to issue its dollar-backed stablecoin, JUSD.
In Dubai, a set of stablecoin-issuance rules has existed since the formation of the Emirate’s Virtual Assets Regulatory Authority (VARA) in March 2022.
The Canadian Securities Administrators, an umbrella organization for Canada’s provincial securities regulators, issued guidance in February to regulated crypto exchanges demanding that any stablecoin they list meet certain standards around custodial arrangements, reserve management and audits. The decision to regulate the exchange rather than the issuers, which sets up a kind of backdoor self-regulatory organization, still leaves some questions around the applicability of securities laws. But Alex McDougall, Toronto-based CEO of QCAD-issuer Stablecorp, says the rule-setting was mostly constructive, calling it “a collaborative process, not a witch hunt.”
Finally, in New York – note: not Washington, New York – payments giant PayPal harnessed the trust charter that its partner Paxos has held from the New York Department of Financial Services since 2015 to launch what Paxos calls the first regulated stablecoin in the U.S.
U.S. Rep. Maxine Waters (D-Calif.) eviscerated PayPal for launching its coin before her colleagues in the House and Senate have had time to deliberate over a federal law. Her harsh words provoked comparisons to the backlash she and others spearheaded against Facebook’s failed stablecoin, Libra, four years ago.
Some are arguing that PayPal’s move, in angering Democrats like Waters, makes it even more likely that the House stablecoin bill, which FInancial Services Committee Chair Patrick McHenry (R-N.C.) successfully got through committee last month, dies in the Democrat-controlled Senate. Already, McHenry’s bill has faced opposition from the White House. But as I argued last week, PayPal is pretty safe – there’s just too much pressure now on the federal government to support such projects. Other countries making progress on regulation adds to that pressure.
Even so, the fact that so many other places are acting constructively on this issue should be cause for concern for any policymaker charged with furthering U.S. interests globally. Even though dollar stablecoins issued in the U.S. and elsewhere are by far the most sought after in the world — mostly seen in crypto users’ demand for Circle’s USDC and Tether’s USDT – the “American opportunity” that Castle Ventures Partner Nic Carter and others see in a global “crypto dollar surge” won’t arise until USD stablecoins are given Washington’s imprimatur.
In the meantime, other countries will use their head start in regulating this rapidly evolving technology to grab a share of this new field in ways that could undermine U.S. financial leadership. Would it matter if a Swiss-issued, euro-backed stablecoin took market share away from dollars? Maybe not so much. But what if China, which is already working with Russia and other allies on crypto solutions that bypass the dollar in foreign trade, fills the vacuum?
I suppose I shouldn’t complain too much. The world might be a much better place if the U.S. squanders this opportunity to turn open-access protocols and the natural demand for dollars into a new form of domination.
But the flip side is that if, as expected, the legislative process in the U.S. drags on for a lot longer, it will perpetuate the existing system of Washington-regulated, Wall Street-managed surveillance. That’s a system that puts bank compliance officers and many other types of middlemen into subtle but powerful rent-seeking positions within the global financial system, imposing trillions of dollars in unnecessary costs and often insurmountable barriers to financial access on every person on earth.
The Conference Board, a non-profit that produces a slew of closely followed U.S. economic data releases, delivered its July leading indicators report on Thursday. The verdict: worrisome.
When its leading economic index (LEI), which incorporates data on things like machine orders, building starts and credit trends, is repeatedly showing declines on an annualized basis, it has historically signaled that a recession is on its way. (That’s what the gray-shaded areas signify in the chart below, with the blue line being the LEI and the gray line that of growth in gross domestic product.) The LEI has had a year-on-year loss for every month of 2023.
Many economists believe we’re still suffering the economic distortions created by the COVID pandemic. And so they warn not to put too much stock in such signals. So, it all might just be fine – after all, unemployment is near record lows and inflation is cooling.
But markets are getting jumpy again and this is the kind of news that reinforces investors’ jitters. It’s perhaps why, despite all the positive signals of institutional interest in bitcoin, its price got trashed this week.
The Conversation: A Tribute to Colleagues
For this, the last Money Reimagined for a while, I can’t think of any other Twitter/X moment better to highlight than that which was offered by the Executive Editor for Consensus, Marc Hochstein. For some time, Marc has been in the habit of sharing a “best of the week” roundup of CoinDeskers’ finest work with his colleagues. This week, he decided to highlight the best stories written or edited by our colleagues who were let go. It is truly a heartfelt tribute.
Relevant Reads: Mining Week Revisited
Taking a leaf out of Marc’s book, I’m going to close the newsletter with a slightly more backward-looking selection of relevant reads (though all are evergreen and as fresh as when they were published.) I’m lifting four stories from Consensus Magazine’s Mining Week issue, which ran July 24-28, each written by one of the fine colleagues with whom we parted ways.
Eliza Grkitsi reported that the sanctions imposed on Russia since its invasion of Ukraine have driven more mining rigs into that country than anywhere else in the world.
Anna Baydakova interviewed DIYers who’ve been mining crypto at home to share what they’ve learned in the not-exactly-high-profit undertaking.
Here’s Eliza Grkitsi again. She surveyed mining experts on what they think will happen next year after the Bitcoin protocol institutes its much anticipated “halving” in the issuance of bitcoin rewards. Their forecasts: hashpower, the measure of the entire Bitcoin network’s computing capacity, could drop by as much as 30% as unprofitable miners turn off their machines. Efficiency and low-cost power are key to surviving that shakeout, they said.
It is now more important than ever to set industry standards and align on practical short-term and long-term objectives through pointed conversations with the best legal minds and Washington D.C.’s most important decision makers.
Join us at State of Crypto: Policy and Regulation on October 24 in Washington D.C. for an unprecedented opportunity to evaluate, dissect and ultimately shape crypto regulatory frameworks that support a vibrant, secure and healthy future for the digital economy.
