Crypto Bahamas: Regulations enter critical stage as gov’t shows interest

Regulation

The crypto community and Wall Street converged last week in Nassau, Bahamas, to discuss the future of digital assets during SALT’s Crypto Bahamas conference. The ​​SkyBridge Alternatives Conference (SALT) was also co-hosted this year by FTX, Sam Bankman-Fried’s cryptocurrency exchange.

Anthony Scaramucci, founder of the hedge fund SkyBridge Capital, kicked off Crypto Bahamas with a press conference explaining that the goal behind the event was to merge the traditional financial world with the crypto community:

“Crypto Bahamas combines the crypto native FTX audience with the SkyBridge asset management firm audience. We are bringing these two worlds together to create a more equitable financial system.”

Traditional finance eyes crypto as regulations take shape

The combination of traditional financial institutions with crypto natives was indeed one of the most notable and noticeable (a number of men and women were wearing suits, while some sported shorts and flip flops) aspects of Crypto Bahamas. For instance, Kevin O’Leary — the Canadian entrepreneur better known as “Mr. Wonderful” for his role on Shark Tank — told Cointelegraph that the people present at the Crypto Bahamas proved to be the most important aspect:

“We have governments from around the world here, along with institutional investors that don’t actually own any cryptocurrency, but are watching the momentum in politics. They are starting to realize that a big change is coming.”

According to O’Leary, recent crypto regulatory frameworks fromUnited States Senator Kirsten Gillibrand and Senator Cynthia Lummis, along with the Stablecoin Transparency Act proposed on March 31, 2022, by Representative Trey Hollingsworth and Senator Bill Hagerty, are now attracting institutional interest in crypto. 

“They’ve come to the conclusion that this is an asset class that is here to stay,” O’Leary remarked. While this may be, he pointed out that many traditional financial institutions still don’t own any cryptocurrency and will not own any digital assets until policy is implemented. “I think cryptocurrency will become the twelfth sector of the S&P. We will be paying 20-30% more when institutions start indexing this. That’s the big debate happening at this conference.”

To O’Leary’s point, while some members of thecrypto community may find institutional players to be intrusive, Henri Arslanian, senior crypto adviser at PwC, told Cointelegraph during the conference that the crypto ecosystem should welcome the entry of institutions, noting that these centralized players provide the level of maturity and experience needed for working with institutional investors. “This can be beneficial for the entire crypto ecosystem,” said Arslanian.

Scaramucci further told Cointelegraph that crypto is still in its infancy, but he predicts that the market will undergo major innovations in the next five years. “In the long term, I’m excited about where everything is going, but in the short term we will witness headwinds as a result of post COVID-19, the war between Russia and Ukraine, the specter of inflation and supply chain issues,” he remarked. Scaramucci added that he believes FTX will be the most transformational player in the space overall because “their mission is to transform the entire financial ecosystem by tokenizing all markets.”

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If you build it, they will come

In the meantime, it appears as if the Bahamas will likely become the world’s next crypto hotspot. While FTX moved its headquarters from Hong Kong to the Bahamas in September 2021, it’s anticipated that more crypto companies will do the same. Bahamian Prime Minister Philip Davis told Cointelegraph that the country has a regulatory regime in place and recently published a policy white paper framework to help crypto businesses understand how to operate in the country:

“This will help companies understand how they can grow and prosper, and what we can expect from them. The policy also takes into account concerns people have about cryptocurrency and the risks associated with digital assets. Policy is implemented to protect consumers and the integrity of the space, and at the same time ensure that we minimize all risks that may be associated with businesses here.”

Scaramucci said that he believes the Bahamas is becoming a crypto-centric region that will be known in the next five years as one of the most “forward thinking and economic visionary countries.” Arslanian added that crypto-friendly jurisdictions seen in regions like the Bahamas and Dubai have the opportunity to become global hubs by attracting top-performing crypto companies. “These jurisdictions are clearly focused on the future of crypto,” he said. On the other hand, Arslanian pointed out that the U.S. is still lacking in regulatory clarity when it comes to cryptocurrency innovation:

“I moderated a panel before this interview with Chris Giancarlo, the former chairman of the U.S. Commodity Futures Trading Commission. I asked him how he would rate crypto regulations on a scale of zero to 10 in the U.S., and he answered zero. Jurisdictions have the agility, but they also need the will to embrace crypto.”

In terms of understanding how the U.S. may improve upon crypto regulations moving forward, Arslanian explained that models inDubai such as the newly formed Dubai Virtual Asset Regulatory Authority (VARA) may be helpful for other regions to implement. 

“VARA is a specialized crypto regulator, so they know this vertical very well. We need more regulators specializing in this policy in other regions.” While VARA is a recent innovation, FTX expanded its operations in the United Arab Emirates in March of this year byreceiving a virtual asset exchange license in Dubai, which was granted under VARA.

Crypto undergoing “regulatory madness,” but future looks bright

Overall, regulatory developments within the cryptocurrency sector were widely discussed at Crypto Bahamas. For example, stablecoins and central bank digital currencies (CBDCs) were a hot topic of debate.

Sheila Warren, CEO of the Crypto Council for Innovation, moderated a panel discussion entitled “DeFi Future: Inside the making of a new financial system.” Warren told Cointelegraph that the next two to three years will determine the trajectory of Web3 and blockchain technology for generations to come, given innovation currently happening within the crypto sector.

“The biggest threat, but also the greatest opportunity for crypto right now is in the policy making space. We have evidence and hard data now to demonstrate how technology can achieve public policy goals that we can all agree is important for society,” she said.

In regard to stablecoins and CBDCs, Warren explained that both of these have a role to play within financial systems based on different use cases. “CBDCs may make sense in a contained financial system, but in most cases, I remain skeptical of CBDCs beyond interbank settlements and cross border payments.” In contrast, Warren believes that stablecoins have tremendous potential when it comes to being used as programmable money. She said:

“There is a role for stablecoins that is critically important. For instance, I think USD Coin is one of the most important innovations we are currently seeing in the ecosystem in terms of the bridge it can provide between different assets while enabling programablity in smart contracts. I’m bullish on stablecoins, but I want to see how regulatory environments treat them — this is important for our entire ecosystem.”

O’Leary thinks the first crypto-friendly policy to be adopted in the U.S. will focus on stablecoins. He believes this will be the case due to the Stablecoin Transparency Act introduced earlier this year, which aims to audit stablecoins on a 30-day cycle. 

“This is similar to money market accounts that Fidelity and Schwab have, so they are looking at this as a way to bring transparency to stablecoins. Let’s say USDC is the first stablecoin to receive this license — others will soon do the same,” O’Leary said.

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He added that such regulations could be transformative for the traditional finance space. “For example, with FX trading, I’m currently getting overrun by fees, as I have to convert U.S. dollars into euros or British pounds when I buy European stocks. But, if there was a stablecoin, there would be more transparency, less friction and it would be auditable. I could transfer money in seconds,” he explained.

O’Leary further pointed out that stablecoin regulation legislation will likely occur after the U.S. midterm elections that are set to take place November 8 this year. “There will be a change in leadership,” said O’Leary. Warren added that the crypto sector is currently witnessing “regulatory madness,” noting that there is not a single jurisdiction not focused on crypto innovation at the moment, “This is the most important effort of our time. We are currently laying the foundation for crypto moving forward.”

To put this in perspective, Scaramucci told Cointelegraph that retirement plan providerFidelity Investments announcing 401(k) retirement saving account holders the option to invest in Bitcoin (BTC) is a seismic event in terms of pushing crypto regulation forward. “I predict that Fidelity will do for Bitcoin and possibly other crypto what it did for the U.S. stock market in the 80s and early 90s. Fidelity has $2.4 trillion dollars in retirement accounts under custody, so just imagine a small sliver of that moving into Bitcoin.”

Scaramucci also revealed that SkyBridge will soon be offering a Bitcoin retirement option plan to its employees. Yet, he pointed out that a Bitcoin exchange-traded fund (ETF) within the U.S. is the biggest elephant in the room at the moment. “I’m hoping we will see a Bitcoin cash offering by the end of this year. If this happens, it will force all major financial services companies to have a Bitcoin cash offering moving forward.”

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