Crypto Crisis: National Defense Bill Threatens Stablecoins' Existence

In a surprising turn of events, recent amendments to a national defense bill might spell trouble for Circle's USD Coin (USDC) and other stablecoins.

by Faruk Imamovic
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Crypto Crisis: National Defense Bill Threatens Stablecoins' Existence

In a surprising turn of events, recent amendments to a national defense bill might spell trouble for Circle's USD Coin (USDC) and other stablecoins. The legislation has already cleared the United States Senate, and if it progresses further, the entire landscape of stablecoin regulation could shift drastically.

Regulatory Woes Loom for Stablecoins

Berenberg analyst Mark Palmer, in his July 31 investment note, delved into the potential repercussions that could ensue from the recent amendment to the 2024 National Defense Authorization Act (NDAA).

This amendment could impose stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) requirements that stablecoin issuers may find difficult, if not impossible, to comply with. According to Palmer, "The amendment would require the U.S.

Treasury Secretary to ‘establish examination standards for crypto assets’ that would help regulators to ensure compliance with money laundering and sanctions laws." Palmer warns that this amendment, if included in the final version of the NDAA, could lead to significant problems.

The issue primarily lies in the anonymity of stablecoin holders. Their identities can only be ascertained at the point of issuance and redemption of the asset, a fact that could result in a significant decrease in USDC's market cap, according to Palmer.

Impacts on Bullish Activity and Market Sentiments

This legislative development comes at a critical time, as two significant factors of bullish activity for crypto giant Coinbase are reportedly on shaky ground. Palmer highlighted that recent comments from SEC Chair Gary Gensler have "poured cold water on the primary sources of the rally." This casts a shadow of uncertainty over the future of Coinbase and other stablecoin issuers.

However, despite the turbulent outlook, Berenberg has maintained its “hold” rating for Coinbase stock. It noted that while there is indeed "significant uncertainty" for Coinbase's future, its substantial balance of cash and equivalents offers a measure of "cushion and flexibility." This could be vital in ensuring the financial longevity of the company amidst the shifting regulatory landscape.

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