Binance’s chief strategy officer fears strict U.S. crypto regulation could ‘choke out’ the industry and cause ‘real market volatility’

Hillmann argued that U.S. crypto regulations are becoming increasingly strict and misguided, which could cause some “real market volatility” or even “choke out” the industry.

“The U.S. has always been a place that has really fostered great innovation,” he told Insider. “Unfortunately, I think [what] we’re seeing now is going to come at a real cost [to investors] over time.”

U.S. regulators have stepped up their enforcement of crypto regulations in the wake of the collapse of FTX last year, once the world’s second largest crypto exchange. 

In January, the Federal Reserve Board, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency issued a joint statement warning banks about the risks of exposure to “crypto-asset related activities.” And in the weeks since, the Securities and Exchange Commission (SEC) has dished out seven-figure fines to celebrities who promoted cryptocurrencies and clamped down on “staking” features—where users earn rewards for holding certain cryptocurrencies. The crypto exchange Kraken was fined $30 million for improper disclosures related to its staking feature earlier this month. 

Binance’s Hillmann is particularly worried about increasing regulations against exchange tokens—which are used to facilitate transactions on crypto exchanges—and stablecoins—whose value is pegged to an external asset like the dollar or gold.

After the collapse of the algorithmic stablecoin TerraUSD last year, regulators have begun looking into popular stablecoins that are supposed to maintain a one-to-one peg to an external asset. But Hillmann said that over-bearing regulations could lead to the loss of what he called stablecoin “safeguards” for crypto investors. Stablecoins are typically seen as a safe haven asset by crypto investors due to their low volatility.

“When you take that away from users at a time like this, that safety net disappears,” Hilmann argued. “At the same time, we’re seeing a pressure campaign on U.S. banks to also not service crypto. Not only do [investors] not have the ability to move their money to a safe [place], they also aren’t able to pull it off the exchanges easily.”

Hillmann’s comments come after the New York Department of Financial Services forced the blockchain platform Paxos to stop minting Binance’s stablecoin(BUSD) earlier this month, citing “unresolved issues related to Paxos’ oversight of its relationship with Binance.” On Feb. 12, the Wall Street Journal also reported that the SEC plans to sue Paxos for violating investor protection laws in regards to BUSD. The stablecoins’ market cap has dropped from $16.1 billion to just over $12 billion in the weeks since, according to data from Coinmarketcap.com.

While the enforcement of cryptocurrency regulations has been steadily increasing over the past year, the SEC’s decision regarding Paxos and BUSD is the first lawsuit targeting a stablecoin and amounts to a big step up from regulators, which some argue is meant to send crypto back to the “fringes of finance.”

In January, Binance admitted to management issues with its stablecoin offerings after multiple outlets found irregularities in the collateral used to back those tokens. But the company said last week that it is nearing a settlement with U.S regulators to “make amends” and pay fines for its numerous legal issues in recent years.