- The range of stablecoin issuers could expand if the SEC becomes a regulator, despite its firm stance on cryptos.
- A brawl is brewing between the SEC and the Federal Reserve over which stablecoins will oversee, a senior Cowen analyst said.
- If the Fed wins, the big banks will have an advantage in issuing stablecoins, Jaret Seiberg said in a note.
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The Securities and Exchange Commission is taking a hard line on stablecoins right now – but if it ends up regulating asset-backed cryptocurrencies, that could mean a much wider range of these coins on offer.
This is the view of Jaret Seiberg, a DC-based financial services policy analyst in Cowen, who noted that the government agency has a strong rival for the oversight role.
“We see a fight brewing between the Federal Reserve and the SEC to regulate stablecoins,” Seiberg said in a note this week.
The surge in popularity of crypto assets over the past year has prompted regulators to focus on potential risks to investors and the financial system.
Gary Gensler, chairman of the SEC, compared stablecoins to “poker chips” at the casino in the “Old West” crypto market. Stablecoins are cryptocurrencies backed by fiat currency such as the US dollar or traditional stable value assets.
Tether and Circle, the two biggest stablecoins by market capitalization, have come under regulatory pressure recently, with the SEC issuing an investigative subpoena to Circle this summer.
Gensler and Fed Chairman Jerome Powell were among senior officials – including Treasury Secretary Janet Yellen – who hinted at tighter stablecoin rules when they met to discuss the tie-up. in July.
The SEC boss said some stablecoins may well be securities. Meanwhile, the Fed chief said stablecoins are like money market funds or bank deposits.
If the SEC wins the surveillance fight, it will treat stablecoins like blue chip money market mutual funds, or MMMFs, which come with liquidity requirements and redemption limits, according to Cowen.
“We believe there will be a greater diversity of stablecoin issuers if the SEC wins. Many entities, from asset managers to banks to securities firms, could be issuers.” , Seiberg said.
The Fed will take a banking regulatory approach, according to Cowen. Stablecoins would become another deposit product, along with normal banking rules and Community Reinvestment Act obligations.
“If the Federal Reserve wins this fight, we expect the big banks to have the edge when it comes to stable coin issuance,” Seiberg said.
The Biden administration appears to support the Fed’s approach, as it pushed Congress to create a bank-like charter for stablecoins. He urged the Financial Stability Supervisory Board to consider the risks of stablecoins to the financial system.
Cowen expects the FSOC to view stablecoins as “systemically important,” paving the way for the Fed to oversee them like the banks. The central bank has a key ally in the person of Yellen, a former Fed boss who now chairs the FSOC.
“This is not the first power struggle between the two. They fought in the 1990s to be the umbrella regulator of financial companies. The Fed won this battle,” Seiberg said.
Cowen believes the SEC has the advantage because the regulator of the markets is seen to have the easiest path to establishing a regulatory regime.
“The FSOC process has been cumbersome and Congress rarely acts,” Seiberg said of the Fed’s path.
In contrast, the SEC may be able to treat stablecoins like securities, paving the way for rules like those of money market mutual funds.
Either way, there is little real difference for stablecoins between the two regulatory regimes, according to Cowen. Either one would build confidence.
“For us, both options should reassure investors that stablecoins are fully backed by US dollars. This should limit the risk of leakage,” Seiberg said.
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