Why the SEC v. Ripple case is significant for crypto’s future

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BTIG Managing Director – Research – Digital Assets Mark Palmer joins Yahoo Finance to discuss how cryptocurrency companies are reacting to the possibility of regulations and the lack of educated lawmakers dealing with crypto policy.

Video Transcript

BRIAN SOZZI: Right now, you can’t be chatting about cryptocurrencies and, in the same breath, not discussing potential regulation of the space. How governments globally deal with the rise of crypto will be key to how investors put money to work in the space moving forward.

Mark Palmer is BTIG’s Managing Director of Digital Asset Research and joins us now. Mark, good to see you here. So you’re coming hot off your inaugural BTIG Future of Digital Assets conference. Big turnout for you. 84 blockchain and crypto companies appeared. Really, I think, highlighting the enthusiasm in the crypto space. What was the mood in the conference amongst those that attended about regulation? What were– what were they telling you?

MARK PALMER: What was really interesting was that as much as the companies that were presenting were very much focused on what was going on from a regulatory perspective, they weren’t running away from the concept of being regulated or viewing that as being negative per se. In fact, it was quite the opposite.

What many crypto companies are looking for more than anything else is a removal of the uncertainty that has been shrouding the space up to this point. In the absence of regulatory clarity, there is going to be a suppressive effect on valuations across the board. There are questions that are causing companies to pause, to a certain extent, with regard to executing on their strategies because they don’t know what the regulatory landscape is going to look like.

And so interestingly enough, we heard companies saying, with regard to regulation, you know, we’d like to see it occur. Obviously they’d like to see that occur in a measured manner where there are reasonable guardrails put around the space, but they’re not shying away from it.

JULIE HYMAN: Hey, Mark, it’s Julie here. I mean, is this a situation of be careful what you wish for, right? Because what guidance it seems that the industry has gotten has not been terribly positive. I mean, when you see some of these companies pull back on their lending products, for example, because of the guidance that they have gotten from the SEC, opaque though it may be according to them. I mean, couldn’t– when we get regulation, couldn’t it actually crimp the industry?

MARK PALMER: I think there’s a concern that in the near term we could see that sort of an impact. And, quite frankly, I am of the view that a lot of these issues are ultimately going to be decided in the courts.

So I think when you hear industry executives talk about how regulation could be a positive, what they’re not talking about is extremely heavy-handed regulation, you know? But, you know, for example, Mike Novogratz from Galaxy Digital was at our conference, and he said what you’re seeing in DC is not an existential threat. There’s no one in DC who’s looking to kill the crypto industry. But in the near term, you could see a bumpy road. At the end of that road, if there’s clarity, then it will be well worth it.

Going into 2021, we have said we believe that this was going to be a really critical year, that there could be a lot of blood spilled along the way as that regulatory clarity comes to the fore. We believe that a lot of that, again, is going to come down to the courts. Front and center is, of course, the case SEC v Ripple, which is working its way through the courts right now. You know, that may provide at least an indication of where things go from here with regard to the decision.

If Ripple prevails in that case, then I think the SEC is going to have a more limited path forward with regard to regulation. If the SEC wins, then they’re going to have more of an upper hand.

JULIE HYMAN: And, Mark, just a quick follow up on this. Bloomberg News reported that the pick to head the Office of the Comptroller of the Currency, the Biden pick is Saule Omarova, who’s a law professor who’s been critical of the cryptocurrency industry. How significant would that be?

MARK PALMER: Well, I think if you look at where the OCC has been in the past year, you had Brian Brooks as the interim head of the OCC last year. He was extremely supportive of the crypto industry, and we saw companies like Paxos able to get national trust bank charters as a consequence.

The likelihood of any crypto company getting a national trust bank charter at this point I think is essentially nil, which makes those that do have these– Paxos being one company, Anchorage being another– in a really favored position because they were already able to get that distinction.

Now, we do believe that the likelihood that the federal government is going to be supportive in this regard again is almost nonexistent. What does that mean? It means that we now revert back to the states. And if you look across the country, there are states such as Wyoming, South Dakota, Nebraska, Texas that have been very supportive of the blockchain and crypto space. They will provide what are effectively state licenses so that these companies can operate, and it just makes it that much more challenging for a company that’s looking to grow in a big way, you know, given the fact that they are somewhat confined.

EMILY MCCORMICK: Mark, this is Emily. I’m wondering, based on where things stand now, do you think there’s enough of an understanding about crypto in DC based on the people in place at present, enough interfacing between crypto leaders and politicians? Because to Julie’s earlier point, there have been instances of outcry against proposed legislation coming out of DC. I mean, just thinking back over the summer with the infrastructure bill, those proposals and the amendments around who should be taxed and who should be required to comply with some of these crypto tax-reporting standards had generated so much debate within the crypto industry itself.

MARK PALMER: Yeah, that’s another thing that came out of our conference yesterday. Mike Novogratz, who I mentioned earlier from Galaxy Digital, said that the crypto industry has really been late to the game in terms of communicating effectively with Capitol Hill as well as with regulators. They just were not focused on that over the last number of years. Frankly, a lot of these companies were simply focused on building their own businesses.

But they need to catch up as a consequence of that because what was said again and again yesterday is that there is an education gap. You have regulators and lawmakers who are being tasked with regulating or providing legislation around the crypto space who, frankly, don’t have sufficient understanding of it to be able to make those kinds of decisions in a really informed way.

So there is definitely going to be a ramp up of that effort by the crypto industry in general to get lawmakers to the point that they better understand the benefits of cryptocurrency, the benefits of blockchain technology so that when they do get to the point that they’re voting on this, you know, they’ll be able to do so in an informed manner.

BRIAN SOZZI: Mark Palmer, BTIG managing director of digital asset research, always good to see you. Congrats on the conference debut.

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