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U.S. defense bill could subject stablecoins to requirements they would be unable to comply-Analyst

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TL;DR

  • According to an investment note from Berenberg analyst Mark Palmer on July 31, a recent amendment to the 2024 National Defense Authorization Act (NDAA) may introduce stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) measures that stablecoin issuers might struggle to meet.
  • The proposed amendment calls for the U.S. Treasury Secretary to establish examination standards for crypto assets to ensure compliance with money laundering and sanctions laws.

Circle’s USD Coin (USDC) and other stablecoins could face significant compliance challenges if a newly passed national defense bill in the U.S. becomes law. According to an investment note from Berenberg analyst Mark Palmer on July 31, a recent amendment to the 2024 National Defense Authorization Act (NDAA) may introduce stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) measures that stablecoin issuers might struggle to meet.

The proposed amendment calls for the U.S. Treasury Secretary to establish examination standards for crypto assets to ensure compliance with money laundering and sanctions laws. While the intention is to enhance transparency and accountability in the crypto space, this could create compliance issues for stablecoin issuers.

Palmer pointed out that identifying stablecoin holders is currently feasible only during the issuance and redemption of the assets. Sustaining such visibility and compliance throughout the token’s lifecycle could prove challenging or even impossible for stablecoin issuers. As a result, this regulatory development could potentially lead to a further decline in USDC’s market cap, which has already seen a significant drop of approximately 39% ($17.5 billion) since March 5.

The compliance concerns do not only affect Circle but also have implications for Coinbase, given its significant reliance on interest income from USDC. In the first quarter of this year, Coinbase derived 27% of its net revenue from interest income on USDC.

U.S. SEC regulations

Coinbase’s stock has performed exceptionally well this year, outperforming traditional equities with a surge of 170% from $33 on January 1 to $98.61 at the time of writing. Berenberg attributed this outperformance to two key factors: the favorable ruling for Ripple Labs and the growing interest in spot Bitcoin exchange-traded funds (ETFs) from major institutions like BlackRock and Fidelity. However, both these drivers are now facing uncertainties due to recent comments from U.S. SEC Chair Gary Gensler.

Gensler’s remarks have raised concerns among investors, with his statement that cryptocurrencies might fall under the SEC’s purview potentially impacting Coinbase’s business model. Additionally, his response regarding Bitcoin ETF applications suggests he may oppose their approvals, adding further uncertainty to the crypto market.

In light of these factors, Berenberg has maintained its “hold” rating for Coinbase stock. Although there is significant uncertainty about Coinbase’s future, the company’s substantial balance of cash and equivalents provides a cushion and flexibility to navigate potential challenges and ensure its financial longevity.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Lacton Muriuki

Lacton is an experienced journalist specializing in blockchain-based technologies, including NFTs and cryptocurrency. He dabbles in daily crypto news rich with well-researched stats. He adds aesthetic appeal, adding a human face to technology.

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