The OCC chief believes Bank regulation of stablecoins will be great for the crypto industry and also the safety of the financial system as we can see more today in our latest altcoin news.
The Office of the Comptroller of the Currency is charged with regulating national banks within the US but the OCC chief noted that the agency has the wherewithal to bring stable coins under its purview. Speaking at an executive roundtable on the future of crypto and their regulation during the British American Business Translatlantic Finance Forum, Michael Hsu as the Acting Comptroller said that Bank regulation will provide stablecoins some credibility.
Calling stablecoins the oxygen of the crypto ecosystem because of their function as a bridge to fiat currencies, Hsu posited a situation where holders of USDT, USDC, and other fiat pegged assets don’t trust they are fully redeemable for the cash that backs them. Tether even claimed to be fully backed by the dollar before backtracking to claim cash reserves. Hsu says that he has seen it before in 2018 when the investors initiated runs in the banks, money market funds and pooled investments which took the US financial system down:
“The vulnerabilities that lead to a run generally do not appear suddenly out of nowhere. They build up over time and are largely ignored, until a small group of participants sense the tail risk, get nervous, and quietly begin to edge away.”
The Federal Reserve Chair Jerome Powell also said that stablecoins should be regulated like money market funds that are mutual funds that can have a mix of cash, liquid securities, and debt securities and unlike Tether or USDC. The treasury secretary Janet Yellen agreed that something should be done more and convened the President’s working group on Financial Markets to sort out the particulars. The group also included SEC chair Gary Gensler and Michael Hsu.
The risk for crypto is that inflows from stablecoins will lose the speed or backtrack, injecting fear and doubt into the crypto users’ minds. From the bullish perspective, it seems unimaginable but according to Coingecko, the market capitalization for the top three stablecoins increased from $30 billion a year to over $137 billion today marking a 356% increase. In the past 90 days, it has been closer to an 18% increase whcih annualizes out to 95%. Hsu predicted:
“Even if the tide were to go out, the reserves would be there, overseen and examined by bank supervisors, and potentially even backstopped by access to a central bank’s discount window to meet short-term liquidity needs if warranted.”
This is a win-win for all stablecoin holders. He said that stablecoin redemptions would become a non-issue while regulatory certainty will spark innovation. It’s a win for the financial system as a whole and due to the increase of connections between crypto and mainstream finance, many new people could get sucked right in.