Regulators are “trying to make crypto operators operate in compliance,” says professor
Lehman College Business and Economics Professor Sean Stein Smith joins Yahoo Finance Live to discuss takeaways from banking instability for crypto markets, fears of contagion, crypto regulation and the outlook for Binance.
Video transcription
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– Digital assets are increasingly seen as a more liquid way to access money during crises like the one that fell SVB, Signature Bank and others. But it comes with its own set of risks. This as regulators take on crypto globally. Joining us several, Sean Stein Smith, professor of business and economics at Lehman College. Good to see you, Sean. So I will first start with the actions taken by the CFTC. We saw what happened with that Binance announcement. What is the current situation here?
SEAN STEIN SMITH: Yes. And so — and so really, in the last half year or so, there’s been a total pivot from a regulatory standpoint, be it the ongoing Coinbase lawsuits, the Kraken lawsuits, the Binance lawsuits. Pretty much every policy maker, regulator, both here in the US and internationally, has been cracking down, not against crypto per se, but they are trying to get crypto operators to operate in compliance with current laws. But they do too, and they haven’t quite released crypto-focused guidance. So it’s a very interesting time to analyze how these firms are going to navigate all this ambiguity going forward.
– Because we’ve been talking about this issue of regulation by enforcement, sort of trying to figure it out. We know we thought it would be the SEC making another move with Binance, but instead another branch of government here. So how do some of these crypto companies keep up when you have these changes in the US and now the G7 looking for tighter frameworks for crypto as well?
SEAN STEIN SMITH: Yes, absolutely. I mean, for any operator out there trying to either handle customer trades, issue their own tokens, it’s really been an uphill battle. And I don’t think it’s going to get any easier anytime soon, right, because as you said, there’s still some ambiguity about who even oversees what types of operators, right? And this whole regulation by edict or court case is a real problem, isn’t it, because from a business planning, business continuity point of view, it’s almost impossible to plan, invest or actually create products and services in compliance if these rules are not clear up front.
– So what does it mean if you’re someone who invests in crypto and you’re trying to manage this and you know your taxes are coming up? How are you going to cope with all these new regulations?
SEAN STEIN SMITH: So that’s a very interesting point there, isn’t it, because on the one hand there are these onslaughts of lawsuits, lawsuits, Wells notices and all that, but there haven’t really been that many lawsuits that have come to fruition as of yet. yet. And right now, one way that I advise people to analyze this is to always do your homework on the particular token, on the particular operator, and to always work with a person, be it a lawyer, CPA, or another asset management person out there who has expertise in higher risk assets such as gold, commodities, crypto, and also has in-house expertise in the token in question.
– And many people wonder when it comes to infection. Obviously, sometimes when you get bad news about a token or about a platform, we see it reverberate. But how much of this is contained in an FTX, in a Binance, versus some kind of industry-wide for crypto?
SEAN STEIN SMITH: Hmm. So the ongoing cases against FTX, Coinbase and Binance are really three different cases. FTX more and more, based on the evidence and the allegations, it’s not really so much a problem with crypto, but really — but it was really a problem with how the company itself was actively managed. Coinbase is a very interesting case, isn’t it, as a platform here in the US, publicly traded, an audited entity is also being sued by the SEC. So all of this will be interesting to see how they try to analyze all of this.
And so ultimately, Binance has been on the hot seat pretty much ever since it opened up, right, both here in the US, overseas. And there have been questions about who it does business with, how it communicates to investors here in the US, and how it handles funds from its external customers. So even though all three cases are in the broader blockchain space, the crypto space, all three are really different. And it’s going to be very interesting to see how they all play out based on the individual facts.
– So outside of individual tokens, where do we see inflows when it comes to crypto or blockchain related stocks and investments?
SEAN STEIN SMITH: Secure. So it’s been very, very interesting that even as the SEC, CFTC, G7, OCC, pretty much every agency in the world has tried to crack down and enforce more compliance on blockchain-native operators, crypto-native operators, it’s been incredibly telling that pretty much every major financial institution in the world, be it asset management firms, banking institutions, or even college endowments, has either actively tried to roll out their own products and services via ETFs, or they are actively active. implement their own enterprise blockchains. So it’s been very, very interesting to see that, like the blockchain space, crypto-native companies are under extreme pressure right now, that other companies – TradFi companies, banks, all the rest – are actively moving into these areas.
– Always interesting to see what institutional investors do while sort of retail investors get caught up in some of the panic there. Great to have–
SEAN STEIN SMITH: Absolutely.
– –you on. Sean Stein Smith, Professor of Business and Economics at Lehman College. Thank you for joining me this morning.
