Mining, Stablecoins and Custody: Regulators Are Coming For Crypto
There's some low-hanging fruit for regulators to come after when it comes to crypto.
Regulators are coming for crypto, it’s politically opportune post-FTX
High-energy crypto mining is an easy target for certain jurisdictions
Stablecoins are another low-hanging fruit because they require banking
Custody is a big problem the crypto industry needs to solve, DeFi could help
If I had a dogecoin for every time someone told me crypto was this totally separate thing from the financial world, I’d be very rich:.
“It’s different from those Wall Street Fraudsters!”
“We’re in a new decentralized paradigm!”
“Math is going to lead the way now!”
Yeah, well some guy who looks like a math whiz, SBF from FTX, swooped in and fooled a lot of people. Those people are mad. And they don’t give a shit about decentralization, these people are complaining to lawmakers.
Regulation is coming for crypto. All that decentralization talk means there’s actually a lot of pieces of the puzzle policy-oriented folks can go after, starting with mining.
Mining
Mining for cryptocurrency, particularly bitcoin, was originally designed as a hobbyist endeavor. Today, it has become an energy-intensive monstrosity, taxing power grids and employing few people to solve cryptographic puzzles for profit.
Source: Cambridge Bitcoin Electricity Consumption Index
That statement alone is enough to get the non-crypto voting populace pissed off. The state of New York, for example, just banned new permits for would-be miners to take over old fossil fuel plants for mining. Not surprisingly, the rules don’t affect the hobbyists.
Mining is the beginning of regulation for crypto. As decentralized and government-resistant some think crypto is, the reality is that some of it is underpinned by power systems, a very regulated public good. Europe is also talking of doing something about energy-intensive crypto mining.
Stablecoins
Stablecoins compete with fiat. It’s that simple - government-issued money was needed in the cryptocurrency ecosystem for things like liquidity, lending and exchange. Enter the stablecoin, an entry point for many in crypto that will certainly get squeezed in this new market cycle.
Stablecoin issuer Circle just canceled its planned IPO. Circle’s USDC market cap has dropped since June’s $55.9 billion high. Signature Bank, which was one of the largest banking partners for Circle’s USDC, is planning to reduce its crypto depositor base by up to $10 billion.
USDC Market capitalization. Source: CoinGecko
“We are not just a crypto bank,” Signature CEO Joe DePaolo recently told investors during a call. That doesn’t sound like a banking executive who is bullish on the near-term future of crypto, particularly given Signature’s involvement with USDC.
Custody
I’m not sure why all of a sudden we’re hearing from Pershing Square hedge fund CEO Bill Ackman about crypto. But he is making some salient points. Yes, he’s getting trolled for statements like this, but there is some serious merit when it comes to crypto custody.

What the guy is trying to say is that a number of things could happen to a custody provider that would cause loss of funds. Hacks, thefts or perhaps a founder so into “effective altruism” (I’m talking about SBF) he thinks he can borrow from customers.
Source: Glassnode
Early November - when FTX imploded - coincided with a spike in new bitcoin addresses, the highest in a year. This is a signal that crypto folks see the custody issue as a problem as well.
In the End
If I had a dogecoin for every time someone told me crypto was this totally separate thing from the financial world, I’d be very rich - maybe even a SlumDOGE Millionaire.
Regulation is coming for crypto. While the idea of “banning bitcoin” is a stupid one, policymakers have been dealing with crypto for some time now - and the time to take action looks near. This isn’t necessarily a bad thing in the long-term - but in the short term it’s not good.
There are some serious issues around mining, stablecoins and custody that need to be worked out policy-wise. Crypto is a force for innovation, but the sense I get is there is an “enough is enough” mentality for those who create laws and legal frameworks for a living.