Stablecoins thrive in Bitcoin’s shadow but continue to face challenges and regulatory pressure

• Qiao Wang of Defi Alliance states that Bitcoin is the least susceptible to upcoming regulatory pressures.
• The SEC is likely to actively police crypto trading platforms and stablecoins, based on remarks by Chairman Gary Gensler.
• Stablecoins may meet the definition of securities or investment companies, putting them in the SEC’s jurisdiction.

Cryptocurrency exchanges that facilitate the trade of stablecoins that may be securities could face penalties imposed by the Securities & Exchange Commission. Bitcoin may remain unaffected by regulatory scrutiny. 

SEC Chairman Gensler prioritizes crackdown on crypto exchanges and stablecoins

The Securities & Exchange Commission (SEC), a large independent agency of the US federal government, is set to regulate cryptocurrency markets to the maximum extent possible using its existing authority. Gary Gensler, Chairman of SEC, signaled that the agency is likely to become more active in policing crypto trading and lending platforms, as well as stablecoins.

Gensler stated that stablecoins could be deemed securities or investment companies by definition. Securities are within the SEC’s jurisdiction, therefore, crypto exchanges that offer trading services in securities could be subject to penalties and additional enforcement actions. 

Gensler noted that, 

In July, almost three-fourths of trading on cryptocurrency platforms occurred between a stablecoin and some other token. The use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money-laundering, tax compliance, sanctions and the like.

Currently, there are $113 billion worth of stablecoins in circulation based on data from the Block, a crypto research firm. USD Tether, a stablecoin pegged to the US dollar, accounts for over half of the total circulated coins. USDT and USD Coin (USDC) have repeatedly faced regulatory heat in the past few months, which is likely to continue. 

Unlike stablecoins, Bitcoin price is likely to resist any clampdown from authorities. Qiao Wang, a partner at Defi Alliance, a member-based international trade association created for decentralized financial market professionals, recently tweeted

In response to Wang’s tweet, Erik Voorhees, CEO of Shapeshift, said that Bitcoin is most decentralized, making it least susceptible to regulatory pressures.

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