NYDFS Acknowledges Crypto’s Importance
The NYDFS acknowledges crypto's massive growth, positions itself for regulatory oversight
New York Department of Financial Services (NYDFS) Superintendent Adrienne A. Harris issued a statement on Saturday commending Governor Kathy Hochul on the state’s updated budget.
“That’s why I’m particularly excited that the FY23 Budget establishes telehealth parity, implements new protections against surprise medical bills, and funds new grants for statewide student loan counselors.” [NYDFS]
Three things stand out:
Continued integration of the largest crypto companies with regulatory agencies. It’s no surprise that the largest companies currently support increased regulation. Raising the bar to compete in the space also creates a moat for incumbent companies to protect market share from smaller startups that cannot meet reporting or regulatory requirements.
On the other hand, regulation would also increase public trust—which is needed now more than ever. As prices across digital assets remain sideways, the industry cannot rely on the media hype cycle to increase adoption. Increasing the oversight of exchanges would increase public trust in the space.
It is also more important than ever that regulators not overstep and inadvertently limit innovation. Small startups and individuals need room to experiment and create new things. By definition, these people will not have the capital to compete in a strict regulatory environment. Any new industry regulation needs to keep an eye on innovation.
The terms that define the space in the eyes of regulators. Another area to watch with interest is the shifting of the terminology that defines (broadly) ‘crypto.’ The term crypto is often used as a coverall for everything happening around distributed ledger technology (blockchains). It is slightly overly broad and often leads to categorical assumptions. The Bitcoin space especially likes to distance itself from the term ‘crypto.’
However, it’s not clear what a better term would be. The institutional side has taken to the term ‘digital assets,’ which recycles other industry terms—but seems to fall short of accurately describing what is unique about distributed ledgers as opposed to (digital) payment systems.
Harris uses the terms ‘virtual currency’ and ‘crypto’ in her memo. This speaks to the need for both terms, as the institutional side of the space will resonate more with ‘digital assets,’ but ‘crypto’ is still a necessary catch-all term for the entire industry, while ‘virtual currency’ is rarely used—and nearly only by regulatory agencies.
Increased regulatory funding. More funding pouring into regulators signals more involvement with the crypto space, and acknowledges the legitimacy of the industry. NYDFS now has a pathway to collect oversight fees from the largest firms in the space, giving it the resources to effectively regulate—as it does currently with banking and insurance companies.
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