Two very significant developments happened in Crypto this week: Coinbase filed in preparation for an IPO, and the US FinCEN released a new proposal effectively mandating KYC for unhosted wallets. Together, we believe these developments would have profound implications for the crypto space.
While Coinbase has always had high standards to list coins on its platform, as a public company, such a key revenue-generating activity for the company could see meaningful changes. The “Coinbase pump” could get a totally new meaning in the Crypto space – the extreme scenario could be that the “pure crypto” world – coins and teams that uphold privacy and censorship resistance as the key values that blockchains stand for – could move away from the Coinbase world altogether. The scenario at the other extreme, where most coins do what it takes to move over to the “official” side – also accelerated by Wall Street’s expectations on a newly public Coinbase – forcing the other coins fade into irrelevance – is also possible.
The other significant development is FinCEN’s proposal – that transactions from regulated exchanges to individual wallets not subject to regulation (as well as unregulated foreign exchanges) should be subject to an existing automatic reporting requirement – Currency Transaction Reports (CTR) for cash transactions (Source),
In summary, the proposed rules would
- “Require banks and money service businesses (‘MSBs’) to submit reports, keep records, and verify the identity of customers” who make crypto transactions into unhosted (read: private) wallets.
- Require that “convertible virtual currency” and “legal tender digital assets” be classified as “monetary instruments” and are therefore subject to the requirements of the Bank Secrecy Act (BSA).
- Require that any transaction(s) totaling more than $10,000 in a 24-hour period be reported to FinCEN, a bureau of the US Treasury Department, and that customer’s identity must be verified; many transactions would require a lower threshold of $3,000. Know-your-customer (KYC) rules, then, apply to even private crypto wallets.
These two developments, along with Facebook’s Diem could very well end up defining a “new Crypto” – at least for the US – a new asset class that is completely regulated, that looks like the “old Crypto” – but does not feel like it. But the new Crypto could be a fun new world – enabling a new generation that would clearly see digital assets as a category of things to own, along with physical and financial assets, and decentralized in the sense that it is not owned or operated by one party – and censorship resistance and privacy could become concepts that might just need to wait a lot longer.
As we enter this new era in Crypto, it would be helpful to remember this: A list of wallets with names and addresses, with Bitcoin balances that add up to 21 million, is probably not what Satoshi had in mind when he/she/they hit publish on that white paper in 2008. That said, a promising new era beckons the space, and crypto being crypto, it will be exciting!