Anchorage: Institutions Still Dividing the Crypto Pie

Compilation: Odaily Planet Daily Aya

Despite the summer market slump, the past few weeks have seen a flurry of institutional-related activity, from applications for spot bitcoin ETFs to widespread discussions about custody to upcoming legislation in the U.S. Congress, where debates on foundational topics continue to rage.

Diogo Mónica, co-founder and president of Anchorage Digital, a U.S. federally chartered crypto bank, sat down with The Block on topics related to regulation, legislation, and the broader global market.

Actions and attitudes of agencies

**The Block: Let's look at the situation now fully into the second half of the year from a macro perspective. There have been a lot of interesting headlines on the institutional front over the past few weeks, including all ETF filings. We also saw Prime Trust news, as well as ongoing regulatory uncertainty in the US. What are your thoughts on all this? **

Diogo Mónica: I think the best way to describe institutional engagement right now is that they are trying to stay, and their interest and demand is growing. It's interesting that we see this from the inside and the outside doesn't. As you know, we in Anchorage focus on institutional business.

But these companies (BlackRock, Fidelity, etc.) have started to actually participate in the ecosystem in the past two years, and launch these projects that take 18 to 24 months, especially for things like cryptocurrencies that have to be carefully thought out before they are launched. So now, these ETFs from BlackRock and all this stuff are out. So what you're seeing is actually continued momentum in cryptocurrencies and the fact that institutions aren't shying away from it.

The narrative focus shifts somewhat towards RWA, which makes sense because the agencies talking about it are talking about this particular use case that is very friendly to regulators and the general public. We've discussed it back and forth, and whenever the market is bullish, all institutions talk about cryptocurrencies. And whenever the market is not bullish, they talk about blockchain or the tokenization of global assets. This time was no different.

The difference this time is that there are many legitimate and well-capitalized institutions in this space. They won't leave. As a result, Anchorage saw a massive security inflow at the start of the year.

Prime Trust is yet another reason this trend continues. In the first quarter, we actually grew the assets on the platform by over 80%. We were supposed to be in a bear market, but within a quarter our assets nearly doubled, which speaks to the magic of the narrative.

Yes, the overall market is shrinking, but the institutional market is growing.

Staking and Legislation

**The Block: You are a federally chartered digital bank. Of your current offerings, which one do you see as having the greatest potential for growth? Is it just hosting, or are there other items on the platform that might be of interest to clients? **

Diogo Mónica: First of all I want to stress that we are not a "Federal Chartered Bank" but "the only Federal Chartered Bank", so the meaning of the question is quite different, right?

A very exciting thing is ETH staking after Ethereum's Shapella upgrade. At the beginning of the year, our ETH deposits reached billions of dollars, less than 10% of which was pledged, which is a very small proportion. And right now, we're actually rapidly approaching 50%. I bet it's actually closer to 70% to 80%.

They don't want to take the risk of smart contracts, they want to use a bank that explicitly offers collateral services in their chartered status, and our chartered status does explicitly provide collateral services, which is very unique because it gives confidence to all regulators that they are using a provider that can provide these services.

With all the regulations that the SEC has put in place, we, as a bank, can actually have custody of securities.

The Block: Where do you stand on the current debate in the U.S. about whether there is regulatory clarity in the crypto industry? Do we need new laws? More laws? Or is the current law sufficient?

**Diogo Mónica: **In fact, in the field of cryptocurrencies, there are many places where there is no real clarity, and there is still a lack of clarity, but cryptocurrencies are not a single thing, right? The cryptocurrency spectrum encompasses a variety of different types of assets such as stablecoins, NFTs, commodities like Bitcoin, and potentially securities. Thus, there are different degrees of clarity in different places.

However, we've said from the beginning, "Hey, if there's no clarity, let's build a regulatory regime that allows us to do business effectively regardless of the outcome." And that's what we did.

So other people in the space are actually saying they don't have clarity because they don't want to face the highest level of scrutiny. We've done the harder thing so we can operate under regulatory uncertainty, which still exists.

By the way, our position has always been that more clarity is better. Whether it's good regulation of cryptocurrencies or other forms of regulation, at least it gives us a standard, something to follow and refer to. At present, in terms of securities of cryptocurrencies and digital assets, the operability is very limited. This is very real.

State vs. Federal Regulatory Differences

**The Block: We see a lot of discussion about regulation at the federal level versus state level, you are regulated at the federal level, do you think there should be a primary regulator? Or whether the industry could work with state regulators, like some parts of the banking industry. Where should the center of cryptocurrency regulation be? **

Diogo Mónica: I do believe that in order for this asset class to have the impact we want, regulation should be at the federal level. There's a reason every big bank is regulated at the federal level. This makes sense, since this is the highest level of scrutiny.

Being regulated in a state is very different than being regulated at the federal level, especially when you're talking about states like Nevada or Wyoming. It's very different to be regulated by a regulator that doesn't have enough resources, doesn't have enough manpower, doesn't have the same historical perspective and court cases that we have. We have 200 years of federal cases on exactly what happens in bankruptcy...and, different states mean different risks. There is a court in that state that can make arbitrary decisions about the outcome of a particular case, as we saw in the Celsius and BlockFi cases. So that's not good for cryptocurrencies. This is detrimental to the clarity one seeks from regulators. So if people want consistency, we want both clarity and the highest level of scrutiny at home, we need to stand with the federal regulators. So I think that's what we need.

We should be doing the harder stuff first, rather than starting with a completely disjointed and completely separate set of expectations about what we actually need to do.

**The Block: Changing the subject a bit, I know that Anchorage has an international presence. What is your opinion on the current international market? Are there any jurisdictions that excite you? Is the US at risk of losing the market? Have you seen the evidence? **

Diogo Mónica: Yes, we see evidence of that. We're seeing evidence of companies' reluctance to do business in the US. In fact, we have a license in Singapore where people can own regulated entities outside of the US and participate in cryptocurrencies.

Let me start by saying that there are many compounding factors. Tax implications are one of the biggest factors. From a regulatory standpoint and a tax standpoint, many companies actually want to be outside of the United States.

I've had discussions with a lot of people who really want to get out of the US and seek a hedge.

Europe and Singapore lead the way

**The Block: Which jurisdictions got it right? **

Diogo Mónica: Europe is doing very well with Mica. I think there are aspects of the law that actually shoot themselves in the foot, especially with regards to stablecoins, like the $200 million limit, which is artificial and doesn't really help anyone.

But the law actually provides more clarity, and an order of magnitude more clarity than we have in the US, so I think that's actually great.

But Singapore definitely did something right, they have a very strict and very comprehensive system.

Finally, we have Hong Kong, and their situation is a bit of a spare tire, hot and cold. Now they are very keen to support, they seem to understand that if they lose the cryptocurrency, they will lose this center of financial institutions.

In Hong Kong, regulators are actually putting pressure on banks to accommodate cryptocurrency companies, which is very different from the United States, Singapore, and other countries.

Why do you want cryptocurrencies to stay outside the bank's purview? No, you want a bank that does cryptocurrency so that the regulators actually have oversight. You shouldn't be pushing it overseas, you shouldn't be pushing it out of regulation, so you should be issuing licenses, not denying people who apply for licenses.

So those are the top three, Singapore, Hong Kong, Europe, obviously the US is still the bigger market.

**The Block: Back in the US, what do you want lawmakers and regulators to focus on? What should they be thinking about, or paying attention to? **

**Diogo Mónica: **Basic stuff. Stablecoins are regulated. Tell us what is a stablecoin and what can be called a stablecoin. Don't push it out of the American regulatory sphere.

Second, tell us which regulator regulates digital assets. Are they new? Are they securities? Are they commodities? Who decides?

Currently, the state of the United States is regulation through law enforcement. Every day, there is a new data point for us to integrate into our framework telling us whether something is safe or not, which is not good for everyone.

The US is just stalling innovation; what we want is clear regulation. So they have to tell us who makes the decisions and force them to make quick decisions.

There are also many different things about what is decentralized enough, how to deal with NFTs, etc., but these are secondary, all of which rely on the first two questions.