In order to achieve widespread usage as an alternative to fiat options, blockchain and cryptoassets need to be classified and treated as currencies; the recent update from the Office of the Comptroller of the Currency (OCC) is a great move in that direction.
Blockchain and cryptocurrencies have been part of the financial and economic conversation ever since bitcoin burst into the mainstream during 2017. That said, in order to become an integrated part of the financial system, and to ultimately serve as the basis for an alternative financial system, the blockchain and crypto space need to work with some of the very regulators it was designed to disrupt.
From the very beginning one of the primary issues and obstacles to wider crypto utilization as a medium of exchange and business transactions is the price volatility that – correctly or not – is associated with this asset class. Stablecoins were designed and developed to address this issue, but even after addressing the price volatility so often associated with cryptocurrencies, there was one fundamental issue that remained unaddressed; the lack of regulatory guidance.
This all changed with the update from the OCC.
Breaking down this information and updated guidance, there are a few key considerations and facts that should be factored into every conversation.
Rules matter. It is almost impossible to overstate just how important and relevant this updated guidance is for the broader blockchain and cryptoasset space. The idea of blockchain and cryptocurrency was to serve as an alternative to existing fiat currencies, but without consistent and understandable guidelines this will remain an idea rather than reality. Putting into place some sort of rules and structure will help to encourage wider adoption of cryptocurrencies, and make doing so simpler for individuals and entrepreneurs.
Establishing frameworks and consistently enforceable rules might not have been the original motivation for blockchain or crypto entrepreneurs, but having these rules in place is essential for the continued development and maturation of the space.
Not all crypto are the same. This might sound redundant, but it is important to remember that not every cryptocurrency or blockchain is the same. Specifically, and especially pertinent to this conversation, is that the recent OCC guidance and update only apply to stablecoins that are backed on a 1:1 basis with existing fiat currencies.
What are stablecoins? Stablecoins are cryptocurrencies that are pegged, tethered, or otherwise supported by some sort of external asset. In the context of actually being used as a medium of exchange, stablecoins seem to represent the most viable path forward. That said, in order for these cryptocurrencies to operate as advertised, there needs be equivalency to current fiat options; the OCC guidance is pointing in that direction.
Collaboration is key. Much has been written about how blockchain and cryptocurrencies will disintermediate the existing financial system, but that only represents a partial perspective of the situation. This recent update from the OCC seems to indicate that, on an increasing basis, cryptocurrencies are becoming part of the incumbent financial system. Working with incumbents might not have been the original idea or goal of cryptocurrency organizations, but it does seem that doing so will be critical to the success of the space.
The notification and update from the OCC might have flown under the collective radar for many accounting and financial professionals, simply because there is so much news that comes at the business landscape on a nearly continuous basis. The OCC is not the only regulator that matters to the blockchain and crypto sector, but being among the first to clarify existing guidance will hopefully encourage other agencies to do the same.
Regulatory guidance and clarifications might not be as scintillating as the latest social media posting or political controversy, but updates such as this are arguably even more important for the blockchain and crypto space. This guidance might have been issued by the OCC, and seem to only pertain to some stablecoins, but it is an important first step in what will hopefully be a much improved regulatory landscape.
Rules and guidelines have a large role to play in the success or failure of any idea, crypto is no exception to this role, and it looks like the rule makers are starting to realize the true potential of this sector.