Source: CoinDesk
Compiled by: LianGuaiBitpushNews Topyy
The New York State Department of Financial Services (NYDFS) is tackling a major regulatory challenge: how to list or delist cryptocurrencies on exchanges such as Coinbase and Gemini. According to the latest announcement, the NYDFS guidance update will be based on existing operational standards and attempt to standardize them.
But this is far more than just incremental government reform, and it could have implications for the entire United States and even the world.
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My colleague Jack Schickler has excellently interpreted the latest announcement. In short, the New York regulatory agency has put forward three objectives: to develop policies that enable licensed exchanges to more proactively assess legal, reputational, and market risks in the process of deciding to list cryptocurrencies; to update the number of “greenlisted” currencies (currently limited to BTC, ETH, and stablecoins from LianGuai and Gemini); and to open a public comment period for industry participants to gather their views.
Although NYDFS is “only” a state-level financial regulatory agency, its actions will have an impact on related activities worldwide. It is not difficult to understand that in an increasingly globalized world, New York remains a major hub for economic activity and capital formation, so New York’s regulatory agencies are in a leading position in developing reporting and communication standards in the financial sector. It can be said that if you can succeed in New York, you can succeed anywhere.
Although blockchain has global characteristics (some may argue it is “geographically decentralized,” but this is not a consensus), the development of cryptocurrencies is still influenced by the regulatory dynamics in New York. For example, NYDFS’s investigation and punishment of Tether, the issuer of USDT, has established transparency standards for stablecoins in the cryptocurrency industry. It can be said that NYDFS’s past regulatory enforcement record has fundamentally reshaped the cryptocurrency industry.
Admittedly, the cryptocurrency business license (BitLicense) issued by NYDFS has not become a model for industry regulation, and the regulatory goals set by its designer, lawyer, and former NYDFS head Benjamin Lawsky have not been fully achieved. However, this series of regulations, recommendations, and guidance documents have had a significant impact on the development of the U.S. digital asset industry—many industry insiders believe that they have laid the foundation for regulatory agencies’ attempt to incorporate cryptocurrencies into established rules rather than addressing the uniqueness of cryptocurrencies head-on.
The influence of the New York regulatory system can be described as a mixed bag. Over the years, NYDFS has protected New York residents from countless failed and bankrupted cryptocurrency projects, especially in 2022, when the bankruptcies of Celsius and BlockFi shocked the industry. However, it was also because of the intervention of New York regulators that these companies that would later collapse were banned from providing services in the state of New York. It is worth mentioning that at the time, many people were attracted by the now unsustainable high interest rates and are now secretly grateful that they did not become victims of project bankruptcy.
However, this strict BitLicense system has not always been successful (even without considering the potential gains for Celsius users during market bubbles). Licensed institutions like Xapo, bitFlyer, and the US branch of Bitstamp have not dominated the cryptocurrency trading market in New York State or the United States.
What’s worse is that although only about 30 companies have obtained BitLicenses, this license does not guarantee 100% success in protecting businesses and consumers. For example, Genesis Global Trading, a subsidiary of Genesis, operated under regulation in New York State and was not directly affected by the parent company’s bankruptcy, but it has since closed down due to its own development reasons.
However, measuring whether regulation is “worth it” is meaningless. Especially in the cryptocurrency industry, all true applications are basically difficult to regulate, and all the excitement happens outside closed environments like Coinbase and Gemini. So far, the price trends of cryptocurrencies in the mass market have followed a four-year cycle, and only during bull markets do retail cryptocurrency lending, cryptocurrency credit cards, and other projects become attractive.
The recent announcement by NYDFS has had a global impact because it involves whitelisting and blacklisting of cryptocurrencies, and cryptocurrency trading itself is a global phenomenon. From a macro perspective of cryptocurrency price fluctuations, it is not particularly important which institution obtains BitLicense, but it is crucial whether Coinbase will list or delist a certain cryptocurrency (even though the “Coinbase effect” has now faded away).
When dealing with the delisting of cryptocurrencies, NYDFS seems particularly concerned about market stability. Adrienne Harris, the head of NYDFS, mentioned in the announcement that some cryptocurrencies may not have initially met specific listing criteria or have undergone new changes after listing, making it impossible to continue meeting listing requirements. In such cases, even if these cryptocurrencies were considered suitable for listing in the past, they now need to be delisted to avoid further harm to investors.
In my opinion, this seems to be an extremely challenging task, but it is not because companies are unwilling to comply with the rules or regulatory agencies are incompetent. It is purely from the perspective of market structure that when an asset is distributed globally and lacks liquidity (such as cryptocurrencies), it is prone to price fluctuations. The price of cryptocurrencies is closely related to the reputation of the platforms they are on. If well-known platforms like Coinbase are required to delist certain cryptocurrencies, at least for a period of time, the delisted cryptocurrencies will be overshadowed by negative coverage.
In addition, it may be more effective for platforms to “self-certify” the cryptocurrencies they list, reducing the emergence of unqualified projects from the beginning. However, when regulatory agencies intervene and review cryptocurrencies they perceive as having risks, it remains uncertain whether problematic cryptocurrencies can be timely discovered and delisted. After all, to ensure transparency and fairness, exchanges need to go through multiple steps to delist cryptocurrencies, such as issuing public notices and giving the public sufficient time to respond.
Take the recent Coinbase Layer 2 network BALD as an example. It went live for trading on Sunday, and its market value exceeded $50 million on the same evening. However, its price plummeted on Monday morning. How can regulatory agencies predict such situations?
In fact, regulatory agencies do not even attempt to regulate such projects. Instead, they generally limit their regulatory scope to the so-called “greenlist,” which includes pre-approved cryptocurrencies, rather than taking action against projects that emerge on the chain and may pose real harm.
Even if the process of listing and delisting cryptocurrencies is extended, industry participants do not truly benefit from it. These regulations are likely to result in domestic exchanges in the United States, such as Coinbase, continuing to lose to overseas exchanges like Binance.
Regarding the topic of listing and delisting cryptocurrencies, the regulatory goals seem to be inconsistent with the reality of the industry. This also indicates that there is a certain difference between good regulatory intentions and good regulatory policies.
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