Blood, tears, relief, sweat, then exuberance. 22 regulatory predictions for 2022. Here we go…in a lot of run on sentences…
1. Legislators force regulators to the middle - Regulation by enforcement is well underway and will accelerate in the first quarter under purposeful lack of regulatory clarity, before omnibus crypto legislation gains consensus in the legislature, and regulators double down on cases that establish eminent domain; while institutional crypto VCs finally get their way.
2. SEC has an epic day of reckoning, approves a spot BTC ETF, and turns the tide in favor of institutional investors - The cryptoverse wakes up on a Monday morning in mid-Q1 to a salvo of enforcement actions and inquiry letters delivered en masse to core teams and projects across DeFi and financialized NFTs and generally anyone with a token in play; followed by the approval of a spot BTC ETF by July, in conjunction with stablecoin regulations that allows Tradfi banks and institutions to enter the market at scale pulling traditional regulatory oversight into crypto with it.
3. Crypto becomes a single issue vote - From presidential candidates, to gubernatorial races, to the Senate and the House, incumbent candidates will pander to the crypto masses and new junior politicos will sweep into office stumping for crypto reform, all funded by the CT (if you don’t know, stop reading now) war chest.
4. Lobby spending goes parabolic - Education is the name of the game where crypto trade groups are the shield, and venture capital firms and DAO treasuries are the sword. War chests will continue to amass and deploy at scale as regulatory chop accelerates into summer.
5. Stablecoins are regulated by charter, creating a regulatory floor for mass adoption - This is a long time coming and Q1 will see sharp compliance clamp down on asset based stablecoins after it is announced that projects must register under a hybrid charter that requires minimum capital reserves and strict transparency, forcing a flight and flow of value to algorithmic stablecoins.
6. Ripple settles SEC lawsuit for a win - Ripple squeezes out a settlement from the SEC which is generally seen as a victory, followed by a harrowing market celebration and price appreciation for XRP, that is further sustained when the world wakes up to Ripple’s deep B2B efforts and cash flow, only to see the SEC take a desperation shot at ETH by tackling a staking protocol.
7. US announces the covert development of a CBDC - J. Powell and the PWG concludes, after secretly researching and piloting CBDCs, that a US CBDC is the only real broadsword of dollar supremacy and rapidly moves to deploy a digital dollar standard and weaponizes with the rest of the developed world.
8. Tokenization is the real threat to TradFi - Token registration sandboxes and friendly regulatory regimes in Bermuda, Bahamas, and other traditional island tax havens legitimize CeFis piloting projects there and pit them directly against the traditional insurance and asset management stalwarts that hold reserves offshore and rehypothecate assets back into the US and global financial system, effectively allowing these crypto issuers to eat the system from the inside out.
9. Lending, derivatives, and exchanges give regulators all the attack vectors they need - If it looks like crypto, smells like crypto, and hell even tastes like crypto, who cares to understand it when it is lending and derivatives at the core, and regulators throw the same old book at the same old products regardless of underlying asset type – buyer beware TROs seizing up the crypto credit markets.
10. KYC / AML becomes a competitive moat before being broadly adopted - A handful of smart and ostracized founders shun the permissionless ethos, tear down the geofence, and embrace permissioned KYC, which allows them to survive and thrive above board during significant 2022 regulatory chop, as purely decentralized and permissionless protocols keep a lower profile until regulatory clarity sets in.
11. Wallet native passports will become the norm - Wallets become a KYC trustmark that follows the user everywhere, from the yield farm to the metaverse, streamlining the retail and institutional crypto experience; finally capturing the hearts of crypto users everywhere and eliminating a key attack vector of banking regulators.
12. Founders run out of islands to hop as FATF adoption sets in - The explosion in fundraising related KYC overkill catches up with the traditional tax havens (who have historically been the most forward thinking jurisdictions with clear crypto regulatory regimes) who broadly adopt recent FATF guidance, and traditional founders entering the space begin to look back towards home countries to register, realizing the futility of the KYC rabbit hole for token issuances.
13. IRS will take center stage and lead the enforcement charge while FinCEN / OFAC continue to be the silent cowboys of crypto - The IRS goes from last to first in the enforcement race, issuing clear guidance on staking rewards, wash sale rules, and cash transaction reporting, casting a broad net on the US populus; while FinCEN and OFAC emerge from policing in the OTC shadows to enforcing against protocols with domestic teams and tokens as unlicensed money transmitters.
14. US adopts omnibus crypto legislation with a safe harbor - The Madame Senator from Wyoming or the gentleman Don from Virginia garner broad consensus support for crypto regulation that passes one of the houses in Q3, with a version of Crypto Mom Peirce’s safe harbor at 18 months.
15. The Wyoming DAO fallacy unfolds, starting a state level arms race towards crypto-friendly federalism - States do not recognize Wyoming’ DAO construct, Wyoming does not recognize foreign (read ‘not in state’ for the non-lawyers) projects registering in state, and federal banking regulators do not recognize Wyoming crypto projects, and the only thing that changes is Vermont, Texas, Florida, and a dozen other states launch sandboxes and write friendlier legislation.
16. Decentralization is debunked as a tool against Howey - The SEC concludes that Uniswap’s decentralized personality is a legal misnomer due to disproportionate governance concentration among VCs and low voter participation, and generally concludes that the untested decentralization narrative for crypto projects is not a prophylactic device against securities scrutiny under the Howey test; only to be saved by safe harbor legislation under an omnibus bill.
17. EU’s MiCA forces US to adopt portability standards - EU’s push for reciprocal protocol registration and global standards throughout Europe goes live in late spring and draws waves of innovation and further positions Berlin as the epicenter of crypto development; but more importantly forces the US and UK to a global middle ground and bolsters talk of a global standard in the second half of the year.
18. Compliant US and EU tokens will flood the market - It turns out that the innovation desks at the SEC, CFTC, FinCEN, and FINRA were genuine after all, or at least become genuine by necessity, and several tokens are ushered to market that have regulators’ stamp of approval.
19. Two regional powers will adopt the BTC standard (LatAm, Eastern Europe) - Lets call it Chile (or Argentina:), and Ukraine (or Turkey – to easy:)...for obvious reasons.
20. DAOs will go stateless, then compliant again - The race towards statelessness will accelerate for founders doubling down on decentralized go-to-market strategies and robust DAOs looking to shed legal wrappers, before cash-flowing DAOs reconnect with the real world and the first wave of corporate litigation and legal actions emerge against DAO member bases remind everyone that existing legal structures have merit.
21. DAO M&A will accelerate, driven by treasury consolidation - Vaporware tokens and protocols will die and functional products without traction, KYC, or decentralized communities will be gobbled up by the largest DAOs across DeFi and infrastructure protocols as treasuries go to work to help consolidate feature sets and develop full stack and gamified product offerings.
22. More DAOs than members will position infrastructure providers as king makers - Dunbar’s number tells us effective communication and coordination caps out at ~150 people – as DAOs become oversaturated by the same population of degens chasing bounties and rewards, and are disproportionately active at the tails of the voter base distribution, coordination tools (i.e. Gitcoin, Aragon, etc.) will emerge as the leaders of the asset class, not DAOs themselves….picks and shovels.
DISCLAIMER: This does not constitute legal, tax, or accounting advice of any kind and should not be relied upon as such. All links are open source and property of the respective creator, not the author of this material. This is for discussion purposes only. You should consult your own legal counsel and independent advisors with respect to any and all matters. The ideas and concepts are presented here by the author and are views of his own and not that of any other person or entity.
Although the material contained in this material was prepared based on information from public and private sources that the author believes to be reliable, no representation, warranty or undertaking, stated or implied, is given as to the accuracy of the information contained herein, and the author who prepared this material and the information herein expressly disclaim any liability for the accuracy and completeness of information contained in this material.
This material is distributed for general informational and educational purposes only and is not intended to constitute investment advice. The information, opinions and views contained herein have not been tailored to the investment objectives of any one individual, are current only as of the date hereof and may be subject to change at any time without prior notice. Nothing contained in this material should be construed as investment advice. Any reference to an asset’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.
Any ideas or strategies discussed herein should not be undertaken by any individual without prior consultation with a financial professional for the purpose of assessing whether the ideas or strategies that are discussed are suitable to you based on your own personal objectives, needs and risk tolerance. The author who prepared this material and the information herein expressly disclaims any liability or loss incurred by any person who acts on the information, ideas or strategies discussed herein.
The information contained herein is not, and shall not constitute an offer to sell, a solicitation of an offer to buy or an offer to purchase any assets or securities, nor should it be deemed to be an offer, or a solicitation of an offer, to purchase or sell any investment product or service.