Source: This Is Bitcoin's Turning Point: Custody, Stablecoins & The New Crypto Rules l Mike Belshe
Compiled by: Daisy, ChainCatcher
Editor’s Note:
In the United States, more than 50 million people hold digital assets, and the debate over how to regulate these assets continues. As the political winds shift, the crypto industry has ushered in new legislative opportunities. BitGo CEO Mike Belshe firmly believes that this is a critical moment for the industry to promote reasonable regulation and establish a stable market structure.
In this interview, Mike and host Scott Melker discussed in depth the significance of the repeal of SAB 121, stablecoin regulation, combating financial crimes, the status of self-hosted wallets, and the construction of future market structures. He called on the government to adopt a clear, reasonable and open regulatory strategy to build a real long-term trust mechanism for the crypto industry.
The Repeal of SAB 121 and the Political Opportunity for Crypto Regulation
Scott: The repeal of SAB 121 allows traditional financial institutions to participate in the custody and trading of crypto assets. What do you think of this change? Does it mean it is a positive signal for the industry?
Mike: Absolutely. It's a very hopeful time right now. We are finally in a political environment that is likely to lead to sensible regulation and legislation.
SAB 121 was never a compliance program from the beginning. It was neither reviewed by Congress nor fully discussed publicly. It restricts many new institutions from participating in crypto custody services. Although both houses of Congress passed bills to repeal it, they were ultimately vetoed by the president, but the response from the entire industry was strong.
In fact, this repression has led to a more active participation in politics. People realize that in order to get reasonable regulation, we must actively participate in policy making. This is a turning point and a mobilization.
We hope that all policymakers can join the dialogue. If they have concerns about the industry, we are willing to help resolve them. We are not against regulation, we want to participate in building a more mature system.
On Financial Crime and Regulatory Misalignment
Scott: You said the problem is not all about regulation, but about the way the government deals with financial crime. Can you tell us more about that?
Mike: The problem now is that the US law enforcement system relies too much on the financial system itself as a "detector." Essentially, it is indirectly looking for crimes through the banking system, rather than directly dealing with the crimes themselves.
Take the fentanyl problem as an example. The real solution is to strengthen street law enforcement and strictly enforce the law against drug dealers, rather than asking us crypto companies what we are doing.
A regulator once asked me, “How do you prevent the flow of fentanyl money?” I said, that’s not our job. You shouldn’t let the financial system take on the role of criminal law enforcement. Even more ridiculous, when I suggested that regulators should centralize information collection and investigation, they said, “That would violate privacy.” But in reality, they outsourced this work to banks and crypto companies, resulting in fragmented information and worse enforcement.
This approach is inefficient, ineffective and unfair.
Is crypto really a hotbed of crime?
Scott: What do you think of the accusation that cryptocurrencies facilitate crime? After all, illegal transactions mainly rely on cash.
Mike: That’s absolutely right. Real criminals are no longer willing to use Bitcoin because Bitcoin transactions are traceable and can easily expose them.
Data shows that 99% of illegal financial activities are still completed through US dollar cash. We should abandon the misconception that crypto equals crime. More and more regulators are gradually accepting this fact. More importantly, even in the traditional financial system, money laundering and fraud problems have not been well solved. This shows that the problem lies in the system itself, not crypto assets.
The current regulatory logic is to monitor everyone, including good and bad people, and then try to identify suspects. This approach is too far away from the criminal behavior and is not efficient at all.
Self-custodial wallets and regulatory boundaries: the necessity of policy protection
Scott: Given the possible changes in the political situation in the future, do you think it is necessary to protect the right of self-hosting through legislation?
Mike: I totally agree that legal protection is needed. About a month ago, I attended the White House Crypto Summit on behalf of BitGo, and there were about 30 industry representatives. When everyone took turns to speak, two-thirds of them expressed the same appeal: Thank you for the government's attention to this industry and thank you for the government's executive order, but we need to turn these promises into law.
This administration has indeed moved very quickly, and the pace of policy implementation is amazing. They understand that time is running out, the midterm elections are approaching, and the political environment may change, so they are rushing to push forward relevant reforms. Once the United States establishes a clear self-custody protection mechanism, other countries will follow suit, which will lay a long-term foundation for the global crypto industry.
Scott: You mentioned that you were also dealing with business and politics while on vacation. Is political involvement part of your daily routine?
Mike: That's right. In the past, we often said that business should not be involved in politics, fearing that it would alienate some people. But the crypto industry is different. Today we are facing real policy changes involving fundamental issues such as stablecoins, market structure, and reserve transparency.
We have a constant dialogue with regulators and they are willing to listen. For me, this is not about changing from a businessman to a politician, but about doing everything we can to ensure that good policies are properly understood and adopted.
Stablecoin regulatory controversy and the game between traditional banks
Scott: Should stablecoins have interest-bearing functions, or is regulation overreacting to the Luna incident?
Mike: There is indeed fear, but a bigger part of the reason is the intervention of traditional financial interests. Take Europe's MiCA regulations as an example. It requires stablecoins to deposit most of their reserves in banks instead of investing directly in government bonds. On the surface, it is for regulatory safety, but in fact it is banks protecting their own territory.
In the United States, there is a similar trend. A senator told me that a bank CEO proposed that stablecoins should not buy government bonds, but only keep cash. But in fact, government bonds and cash are almost equivalent - this is obviously just an attempt to lock funds back into the banking system. Of course, stablecoin interest returns do bring new problems and require supervision. But this mechanism is not unsolvable. We can refer to the development of money market funds in the 1970s.
Scott: Do you think the real risk of stablecoin interest returns lies in technology or regulation?
Mike: If we are talking about 1:1 asset-backed stablecoins rather than algorithmic stablecoins, then the core issue is transparency and auditing.
On the technical side, there are indeed some risks:
- Blockchain and smart contracts are still emerging technologies;
- Private key management is immature and can easily get out of control due to human error or fraud;
- Currently stablecoins are not covered by FDIC insurance.
In addition, some people worry that there will be a stablecoin version of a bank run. But I think this is an exaggeration. In the past, Tether was able to quickly cash out when faced with a large number of redemptions, and it has never failed in a bank run. We cannot hinder technological progress due to backward supervision. Instead, we should guide the stablecoin industry towards a more transparent and secure direction through reasonable legislation.
Scott: Tether once redeemed $7 billion in one day, which even big banks find difficult to do.
Mike: Tether has done a great job. It was once questioned, but it has gradually built trust. Many people ask: Why not ask Deloitte to audit? In fact, the auditing agency is unwilling to take risks.
The current large auditing firms are reluctant to touch crypto projects because they are afraid of being held accountable. In the past, Andersen collapsed due to the Enron case (Enron was one of the world's largest electricity, gas and telecommunications companies), which made the entire industry cautious. To solve this problem, we need a clear regulatory framework so that auditing companies can participate with confidence.
I think Tether is now large enough and transparent enough that it is only a matter of time before the audit is completed.
Regulatory capture: Is policy a competitive tool or an industry guardrail?
Scott: US stablecoin issuers are using policy means to exclude overseas competitors such as Tether, which has gone beyond normal business competition.
Mike: This is a classic example of regulatory capture.
The original intention of regulation is to protect the market and consumer safety, but in reality, industry giants often lobby the government to turn regulation into a set of "customized rules" to help them exclude competitors. For example, some current draft legislation explicitly requires that only US companies holding US Treasury bonds can issue compliant stablecoins.
We, BitGo, are an American company. From a business perspective, such rules are actually beneficial to us. But I do not support this approach. An open market and international competition are the foundation for the long-term development of the industry.
Scott: Overseas companies can also operate in compliance by cooperating with Bank of America. There is no need to block the market.
Mike: I totally agree. Another example is that some banks want to pass legislation stipulating that the settlement of stablecoins must go through the banking system and cannot directly use the blockchain network.
It sounds like it’s for “security”, but in fact it’s to regain control of the flow of funds. However, stablecoins on the blockchain use government bonds as reserves, which are inherently safer than bank loan structures. Moreover, they also have higher transparency and faster settlement speeds.
Scott: Regulatory capture also appears in the Market Structure Act. What do you think of this game?
Mike: The "market structure" bill is an important issue that is being promoted, but I am worried that it will become a tool for interest groups to set rules. This bill should have clarified three things: compliance, investor protection, and basic market structure. But many industry participants began to take advantage of this legislative opportunity to tailor a set of favorable rules for themselves and exclude others. We cannot allow this kind of legislation. If regulation becomes a tool rather than a guardrail, the result will inevitably be monopoly and stagnation of innovation.
Reshaping market structure: custody and trading must be separated
Scott: You often say that exchanges should not have custody of user assets. Why is this important in the crypto industry?
Mike: This is about systemic risk.
In the traditional financial system, stock exchanges (such as the New York Stock Exchange and Nasdaq) are only responsible for matching transactions , while assets are managed by custodian banks and clearing is done by clearing houses. The clear division of responsibilities helps prevent single points of failure or moral hazard. In the crypto industry, many exchanges do everything: custody assets, match transactions, and are responsible for clearing and market making. This structure essentially concentrates all risks into one institution .
If there is a problem with this institution, such as FTX, the entire system will collapse. Many chain crashes in the past (FTX, Celsius, Voyager, etc.) were due to structural design defects.
Scott: In other words, the separation of custody and trading should be the focus of regulatory reform.
Mike: Yes. Especially in the field of digital assets, the custody responsibility is heavier. Once the user's private key is stolen or lost, it cannot be recovered. For traditional financial assets, at least they can be remedied through court orders or re-issuance of stocks.
We have seen too many platforms collapse due to excessive leverage, mixed accounts, and unclear custody. If we want to build a robust and sustainable crypto-financial system , custody separation is the top priority.
The gap between asset on-chain and actual implementation
Scott: Real Asset On-Chain (RWA) is very popular, what do you think? Does BitGo have any related layout?
Mike: This is an important direction for the next stage of the crypto industry, but its implementation is not as easy as imagined.
Blockchain technology certainly has many advantages, but it cannot be regarded as a universal key. Many people mistakenly believe that as long as traditional financial assets are moved to the chain, efficiency can be automatically improved and costs can be reduced. But don’t forget that the traditional financial market is complex because it bears huge capital flows and global circulation compliance requirements.
Taking the US capital market as an example, brokers may only earn a few cents, but their daily trading volume is extremely high, the system is stable, and the risks are controllable. This cannot be replaced by a simple smart contract. We also saw the potential of RWA at BitGo, so we acquired a company called Brassica . It has complete functions such as issuance, custody, and transfer agency, and can build a compliant on-chain asset platform.
Who will dominate this field in the future? Traditional finance has the advantage of distribution channels, but technology companies have the advantages of speed and technology. The ultimate winner may be the one who can find a way to integrate the two.
But no matter who ultimately takes the lead, the beneficiaries of this change will be investors and users.
The regulatory environment is maturing
Scott: Do you think regulation is more mature than in the past? Are clear rules coming soon?
Mike: We are heading in that direction. We now see at least three positive signs:
- Regulators are willing to listen to the industry rather than suppress it outright;
- The enforcement focus has returned to fraud and information disclosure , rather than blanket crackdowns;
- Legislators are beginning to understand the nature of technology and no longer simply equate it with a tool for crime.
We still need to continue to work hard, especially in the areas of leveraged trading and derivatives. If regulation lags behind, the next bull market is likely to be hit by another round of thunder. We now have the opportunity to do better, and we also have the responsibility to seize this opportunity firmly.
