Dragonfly Capital managing partner Haseeb Qureshi says a proposal floating through the U.S. House of Representatives would deal a huge blow to stablecoins.
In a recent blog post, the cross-border crypto asset investment firm executive says the proposed Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act would be a big step back for the emerging sector of the crypto market.
“If adopted, the STABLE Act would force stablecoin reserves to be regulated like bank deposits. This would be a massive setback to stablecoins, which serve as the de facto money of the crypto ecosystem today.”
U.S. Representatives Jesus Garcia, Rashida Tlaib, and Stephen Lynch introduced the act earlier this month.
If passed, the Stable ACT would require any stablecoin issuer to obtain a banking charter and adhere to applicable banking regulations. In addition, companies would have to inform and get approval from the Federal Reserve and Federal Deposit Insurance Corporation (FDIC) and obtain insurance from the FDIC at the Fed that the firm’s issued stablecoins can be converted to US dollars.
Qureshi points out that the largest stablecoin by market cap, Tether (USDT), is not fully backed by dollars yet its supply continues to grow over time. He also notes that USDT is already being investigated by the U.S. Justice Department, the New York Attorney General, and the Commodity Futures Trading Commission (CFTC).
The more Tether’s supply grows, the more likely that it would be regulated out of existence, emphasizes Qureshi.
“Make no mistake: the day that Tether gets taken down will be apocalyptic. Crypto markets will seize, exchanges will be thrown into disarray, millions of crypto traders will likely have their assets frozen, and prices everywhere will plummet. It will be pronounced yet another death for Bitcoin.”
While Dragonfly Capital’s managing partner has a bleak outlook on the future of stablecoins due to the potential regulatory backdrop, Qureshi says the crypto industry will continue to thrive.
“But, as it always does, crypto will eventually recover. And when the dust settles, we’ll enter the third stage of crypto money.
Order books will reconstitute themselves around a new cryptodollar. International crypto markets will quickly acknowledge this new standard, eager to get back to business.”
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