Binance exec: Crypto regulation could ‘suffocate’ the industry

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The biggest risk to cryptocurrencies isn’t another exchange implosion or multi-million dollar hack, it’s regulation. At least that’s what Patrick Hillmann, Chief Strategy Officer of the world’s largest crypto exchange, Binance, said on Monday.

Hillmann argued that U.S. crypto regulations are getting stricter and more misguided, which could lead to “real market volatility” or even “stifle” the industry.

“The United States has always been a place that has really fostered great innovation,” he told Insider. “Unfortunately, I think [what] we see now is going to have a real cost [to investors] over time.”

US regulators have tightened their enforcement of crypto regulations following the collapse of FTX last year, once the world’s second-largest crypto exchange.

In January, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement warning banks of the risks of exposure to “cryptoasset-related activities.” And in the weeks that followed, the Securities and Exchange Commission (SEC) slapped seven-figure fines on celebrities who promoted cryptocurrencies and cracked down on “staking” features, where users earn rewards for holding certain crypto-currencies. Crypto exchange Kraken was fined $30 million for inappropriate disclosures related to its staking feature earlier this month.

Binance’s Hillmann is particularly concerned about increasing regulations against exchange tokens – which are used to facilitate transactions on crypto exchanges – and stablecoins – whose value is pegged to an external asset like the dollar or gold.

After the collapse of the algorithmic stablecoin TerraUSD last year, regulators began looking into popular stablecoins that are supposed to maintain an individual peg to an external asset. But Hillmann said heavy-handed regulation could lead to the loss of what he called stable “collateral” for crypto investors. Stablecoins are generally considered a safe-haven asset by crypto investors due to their low volatility.

“When you take that away from users at a time like this, that safety net disappears,” Hilmann explained. “At the same time, we are seeing a campaign of pressure on US banks not to deal in crypto either. Not only do [investors] not being able to move their money into a safe [place]nor are they able to withdraw trades easily.

Hillmann’s comments come after the New York State Department of Financial Services forced blockchain platform Paxos to stop minting Binance’s stablecoin (BUSD) earlier this month, citing “unresolved issues related to Paxos’ monitoring of its relationship with Binance”. On February 12, The Wall Street Journal also announced that the SEC plans to sue Paxos for violating investor protection laws with respect to BUSD. The market capitalization of stablecoins fell from $16.1 billion to just over $12 billion in the following weeks, according to data from Coinmarketcap.com.

As enforcement of cryptocurrency regulations has steadily increased over the past year, the SEC’s ruling regarding Paxos and BUSD is the first lawsuit targeting a stablecoin and represents a big step forward from regulators, which some say is meant to send crypto back to the “margins of finance.”

In January, Binance admitted management issues with its stablecoin offerings after several outlets found irregularities in the collateral used to back these tokens. But the company said last week it was closing in on a deal with US regulators to “make amends” and pay fines for its many legal troubles in recent years.

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