Facebook recently announced that it would soon be getting into the cryptocurrency business, and that it would create its own utility token that would ultimately allow its two billion users to send funds to their contacts. Other messaging apps such as Signal and Telegram have also announced their intent to offer similar products to their customers in the near future as well.
However, this development does not mean that a new speculative crypto currency craze may be on the horizon.
These cryptocurrencies would be unlike Bitcoin and its ilk in that they would have a stable value–Facebook, for instance, would peg its cryptocurrency value to a basket of national currencies, and its competitors would also peg the value of their currency.
The stable value imposed on these crypto currencies is now par for the course: the purpose of Facebook’s cryptocurrency–as well as its rivals–would be to facilitate transactions on the blockchain and allow people and businesses to easily transfer funds between one another.
The real-time processing of financial transactions has proven to be a service whose time has come. Both Visa and Mastercard have begun providing this service to their customers, and several fintech companies have rolled out tools of their own to do this as well. Venmo and Paypal are billion dollar entities.
Stable value cryptocurrencies promise to facilitate (and make more secure) real-time transactions while also rendering them even less costly to conduct. Other assets like the decentralized native cryptocurrency XRP have been making great strides in advancing the capabilities of utility tokens.
The advent of real time transactions has the promise to dramatically change the landscape for financial markets: for instance, the check payment processor The Clearinghouse recently began offering a service that permit banks to clear checks in real time, ending the need for people to wait multiple days for a check to clear.
While these innovations promise to make financial transactions simpler and cheaper for consumers across the country, it is unclear that the latest developments in this market can be implemented in a timely fashion: the problem is that stable cryptocurrencies currently lack regulatory clarity.
As I’ve previously noted, the U.S. is beset by a haphazard regulatory approach for cryptocurrencies, with no overarching guidance regarding how to classify or regulate these assets. The SEC has only issued piecemeal statements on select currencies, leaving most others in limbo without any indication as to how they may eventually be categorized for regulatory purposes.
The worry many have is that the price gyrations of bitcoin and its ilk will lead the SEC to paint a broad brush across all cryptocurrencies of any sort and declare that they should all be treated as akin to securities.
However the SEC and Treasury choose to proceed, they should resist the temptation to securitize cryptocurrencies–or utility tokens in particular. The securities framework is simply inappropriate for how they are developing and how it appears that they will come to be used. An increasing number of regulatory experts have concluded the same thing.
As a recent Bloomberg piece observed, the lack of regulatory clarity has made it difficult for entrepreneurs in this space to secure funding–which is one reason why large established companies such as Facebook have been able to jump early into this market.
U.S. regulatory authorities – including the SEC – should be working to provide a sensible, clear regulatory framework for the cryptocurrency industry. Until they do, companies from Facebook to its nascent startup competitors will be left without guidance, which will ultimately slow financial market innovations and hinder the U.S. economy.
Author: Ike Brannon