Outlook for stablecoin as Yellen urges U.S. to adopt rules

CoinDesk Global Macro Editor Emily Parker joins Yahoo Finance Live to discuss the outlook for stablecoins.

Video Transcript

AKIKO FUJITA: Welcome back to Yahoo Finance Live. We are seeing Bitcoin continuing its sell-off here, down below that $30,000 level. A steep sell-off there, leading to $90 billion being wiped out from the crypto market. Meanwhile, here in the US, we saw financial regulators on Monday meeting to discuss the financial risks that come with some of the stablecoins.

Let's bring in Emily Parker, who's CoinDesk's Global Macro Editor and CoinDesk TV Anchor. And Emily, it's good to talk to you today. Let's start with some of those moves in Bitcoin, specifically over the last 24 hours. What do we see as a big catalyst? I mean, this, of course, coming on the back of the big sell-off we saw in equities, too, but what are you seeing as potential movers?

EMILY PARKER: Sure, well, with Bitcoin, it's always anybody's guess. But yes, there are some global factors, just like uncertainty over COVID. But for Bitcoin specifically, there's just been a few things that have been happening this summer that have had a downward effect on price. One of them, of course, is China. China has been amplifying its crackdown on Bitcoin. They've been clamping down on miners. They've been clamping down on domestic trade. China's a really important part of the Bitcoin economy. So that's what.

The other is that we've generally just seen more regulatory actions around the world. So regulators have been turning their attention toward Binance, which is an extremely important cryptocurrency exchange. We now see regulators paying more attention to stablecoins. And this, in general, can spook crypto markets because there is a fear that if regulators crack down, it will be much harder to trade cryptocurrency.

ZACK GUZMAN: Yeah, and we got the attestation of USCC, the other stablecoin. We've talked a lot about Tether and what they've revealed to be behind the largest stablecoin and USCC, the second largest, similar, I guess, in terms of what they're disclosing here. But, you know, that is-- I guess, you know, when you think about what the Fed and the other regulators there are trying to focus in on, is kind of whether or not that's true. We haven't necessarily seen an audit of Tether's disclosures there. I mean, what do you, when you look into that, seems to be the biggest thing they're concerned about when it comes to what could go wrong with stablecoins, given how much money has now flooded into it?

EMILY PARKER: Well, that's exactly it. It's how much money has flowed into it. So we're talking about the market cap of the three largest stablecoins as being at $100 billion, up from $11 billion a year earlier. So this is like a real market force. And Tether, in particular, I think about half of Bitcoin trades. I mean, this is a massive part of Bitcoin trading. So yeah, they are concerned that, frankly, that these stablecoins just aren't nearly as stable as they say they are and that they're not backed as they say they are.

So I think this is something that we-- yesterday, in the meeting for the presidential working group, they said that they would be issuing recommendations over the next few months about how to regulate stablecoins. It's unclear what that means. It could be, for example, asking stablecoin issuers to be regulated like banks. Or this could also lead to more pressure for the US government to develop its own central bank digital currency to sort of balance out the impact of these stablecoins.

AKIKO FUJITA: So Emily, what does that ultimately mean for some of these stablecoins? What are the ones you're watching? We're sort of lumping it all in as one. But is it really the most heavily traded ones that are likely to be affected by any kind of regulation?

EMILY PARKER: I mean, in theory, they would all be affected. I mean, I think we're already seeing USDC catch up to Tether. I mean, Tether has been a market leader for a while. It's really important in countries like China, where people use it as an on-ramp for cryptocurrency trading because they're not able to trade in their local national currency, so they're using Tether to get into the market. So it's been really, really important for a long time. But USDC is definitely catching up. But yeah, I mean, I think any stablecoin regulation, in theory, should affect stablecoins across the board.

ZACK GUZMAN: And lastly, I mean, it's not just stablecoins we've seen regulars focus in on. Of course, overnight, you had the attorney general of New Jersey coming after BlockFi, closing down for new clients there. I mean, when we talk about that, it does seem like there have been issues not just on the stablecoin front, but now in crypto lenders and, really, regulators, I think, realizing how big some of these systemic risks might be, not just to the crypto sphere, but also now traditional finance as well, as they're increasingly interwoven.

But you have people in the crypto community pointing to that as a positive, right? We've heard this before, is that, you know, we just want rules and frameworks built so we can understand what you want so we can continue growing here. I'm not sure how much truth is behind that, though, given some of the downturns we've seen as China's clamped down. How do you look at it maybe in that potentially evolving into a positive catalyst?

EMILY PARKER: Yeah, I think that's a really good nuanced question. So not all regulation is created equal. So, you know, China is-- it's been regulating with a pretty blunt instrument, right? So of course, that's spooking crypto markets. But I think a lot of people in the United States think that regulation is ultimately a good thing if regulation is clear and fair. And one of the criticisms of US regulation is that it's just very confusing. There's not really national regulation of cryptocurrency exchanges. So people don't really know what they can do and what they can't do.

So actually, I think a lot of people in the cryptocurrency community are actually advocating for regulation, as long as they know what that regulation is. But yes, I mean, nobody wants regulation that's going to make it harder to access the cryptocurrency markets. But regulation on balance is not a bad thing.

AKIKO FUJITA: Emily Parker, good to talk to you, CoinDesk Global Macro Editor and Anchor.