- >Droves of Former Regulators Are Joining Crypto Companies
Droves of Former Regulators Are Joining Crypto Companies
The merger has begun. No, we’re not talking about a merger between two (cryptocurrency) firms, but rather the merging between the worlds of traditional finance and crypto.
Such cross-pollination was all-but inevitable, given the runaway growth of the cryptocurrency market this year, but what’s most significant about recent cross-pollination is that it’s increasingly happening between crypto and financial regulators.
Simon Chandler | May 4, 2021
Yes, former financial regulators have been joining cryptocurrency companies, and with almost surprising regularity. Most recently Binance.US appointed former acting Comptroller of the Currency Brian Brooks to serve as its CEO, yet it’s only the latest in a growing line of hirings.
Not only are such appointments good in the sense of providing crypto with further legitimacy, but they also bring another, more important benefit. They’re helping to create crypto’s very own ‘revolving door’ between it and regulatory bodies (and government), a door which other industries have long used to secure favorable legislation and treatment. And now, it’s crypto’s turn.
Working ‘Closely’ with Policymakers
Newly appointed Binance.US CEO Brian Brooks said it himself in the press release announcing his appointment. Openly acknowledging what such appointments are all about, the former OCC said, “I am eager to work closely with industry participants and policymakers to develop an enduring regulatory framework that enables Americans to reap the benefits of decentralized finance for generations to come.”
That is the primary rationale for his being headhunted, to provide Binance.US (and Binance) with a door to regulators and government. Again, Binance chief executive Changpeng Zhao admitted just as much in the same press release, saying, “Brian is an esteemed leader with an unparalleled blend of experience across traditional financial services, government, and the digital assets industry.”
The same thing goes for other recent appointments. At the end of March, One River Digital Asset Management — a cryptocurrency investment fund that handles around $2.5 billion in assets — brought in none other than former SEC chair Jay Clayton as a member of its newly formed Academic and Regulatory Advisory Council.
On top of Clayton, it also hired Kevin Hassett (a senior advisor to President Trump and the 29th Chairman of the White House’s Council of Economic Advisers) and Jon Orszag (one-time Assistant to the U.S. Secretary of Commerce and Director of the Office of Policy and Strategic Planning).
As these appointments indicate, One River Digital Asset Management isn’t simply paying for expertise, but also for a network that includes multiple ties to the world of government. As the CEO of One River, Eric Peters, said, “It is crucial to understand how digital assets will interact with existing laws and regulatory bodies, while engaging with governments in an open and transparent manner.”
Again, One River isn’t alone: the former chair of the CFTC (the Commodity Futures Trading Commission) Chris Giancarlo joined BlockFi’s board of directors on April 20. The CEO of the New York-based trading platform, Zac Prince, explained that his appointment was largely about bridging the gap between traditional finance and crypto.
“Chairman Giancarlo is highly respected in both traditional and digital finance, and his drive to advance financial innovation in a methodical, practical, and strategic manner will be invaluable for our development,” he said.
Unpacking every single recent appointment is beyond the scope of this article, but here’s a list of some other significant hirings:
Binance’s appointment on March 10 of former U.S. senator and ambassador to China, Maxwell Baucus, as a government relations adviser.
Binance appointed two former FATF executives as regulatory and compliance advisers on March 25.
Coinbase hired former SEC official Brett Redfearn (who was responsible for overseeing regulation of exchanges) as its VP of capital markets on March 30.
Japanese exchange DeCurret appointed Japan’s former top financial regulator, Toshihide Endo, as a special adviser on March 23.
eToro hired Israel’s former banks regulator, Hedva Ber, as its deputy CEO and VP of operations on April 6.
Expect such appointments to continue, particularly as exchanges continue to profit bigly from the ongoing bull market. They will also continue hiring former execs of traditional finance companies, as indicated by Coinbase hiring former Stripe and Google Pay personnel, for example, and Bitstamp headhunting a one-time Barclays exec.
Basically, the days of crypto being an isolated, self-contained sector are over.
Why Regulatory Hirings Are Bullish for Bitcoin and Crypto
All of this is very good news for Bitcoin and cryptocurrency in general. As stated above, the industry is effectively in the process of constructing a revolving door for itself, so that former policymakers and regulators can begin working as cryptocurrency execs and advisers (and possibly vice versa at some point).
The purpose of this is to provide cryptocurrency firms with greater access to current policymakers and regulators, and to shape regulation and legislation in a way that furthers their interests.
Of course, revolving doors are fairly controversial, but there is evidence that they benefit the companies and industries which harness them.
A study published in 2018 found that “patent examiners [in the US] grant significantly more patents to the firms that later hire them and that much of this leniency extends to prospective employers.”
In 2014, a paper published by American researchers in Interest Groups & Advocacy concluded, “Simply, the revolving door problem is not limited to a handful of headline-catching former legislators, is much bigger than the existing lobbying disclosure regime reveals and — most importantly — significantly distorts the representation of interests before government.”
One interesting 2016 paper, authored by South Korean researchers, found that the recruitment of a former education minister benefitted the private university he was hired by after leaving his governmental position.
One 2019 study conducted in Australia concluded that appointing former politicians to positions with companies in the alcohol, food and gambling sectors created “a range of ethical and moral problems, and [posed] a risk to public health” (presumably because the Australian government ended up making decisions that benefitted the companies over consumers).
And so on. The implication is clear: create a revolving door culture, implant the idea among regulators and politicians that the crypto sector is a potential future employer, and these regulators and politicians will end up being a bit more sympathetic to crypto. At the same time, former regulators/politicians will at the very least provide a more direct channel of communication between crypto and the bodies that govern it.
Again, this is ethically questionable, but there’s little doubt that the crypto industry stands to benefit from its newfound ability to pay the high wages of former regulators and policymakers. In fact, this new trend provides a very strong counterargument to the idea that crypto will sooner or later suffer some kind of regulatory reckoning.
Such a reckoning is arguably becoming more distant with each new appointee, and by extension, we could expect the bull market to continue for a just a little while longer.