Sean Tuffy is probably Twitter’s most prolific financial regulation shitposter. His ability to turn geeky legislation topics into amusing memes has earned him a following of of almost 15,000.
He was until September last year head of market and regulatory intelligence for Citi’s custody and fund services business in EMEA, and before that at BBH, where he started the respected blog On The Regs.
Tuffy’s front row seat to traditional financial regulation gives his followers fresh insights into crypto’s existential crisis. He shared his background and thoughts on the industry with DL News.
DL News: You’ve tweeted about financial regulation for years, but how did you get interested in crypto?
Sean Tuffy: The big moment was Facebook’s ill-fated crypto push, because that moved a lot of the conversations – both in TradFi and policymaking – into the mainstream and it was in the finreg discourse a lot more, be that the push for a US Bitcoin ETF, [EU digital asset regulation] MiCA, or Sam Bankman-Fried’s proposed clearing model.
Also, SBF/FTX’s rise drove my interest as well because it seemed to me so self-evidently a scam that I felt like I was taking crazy pills as his star rose.
So I paid a lot of attention there and did my share of posting about it.
Has anyone checked in on SBF? Like in the movies, this sort of thing would be a distraction used to make and escape— Sean Tuffy (@SMTuffy) March 12, 2023
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DLN: What’s your outlook on crypto?
ST: It’s obvious we’re in the midst of a crypto winter. It’s been a long December post-FTX. I know purists will tell me it’s not a crypto story, but it is, whether they like it or not.
You have regulators looking more seriously at crypto in potential regulations, albeit at different speeds globally.
The US gets all the headlines, as Gary Gensler goes after everyone and everything using Howey tests and securities law to rein in crypto.
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In Europe, you have MiCA limping toward the finish line. That’s paused a bit, largely because of the FTX collapse. It was drawn up in a time when regulators were less cynical about crypto so there are questions about if they need to tighten up any of it.
Then in the UK, you’ve got that hilarious crypto whitepaper that was definitely written from a different era when Britain had a very optimistic mindset about making the UK a crypto centre.
That’s adorable, but crypto won’t be institutionalised in any meaningful way.
Ultimately, the UK will have the same problem with crypto that it has with everything else: it’s not in the EU anymore, and it’s not in the US.
It’s hard to create a financial centre when you’re not connected to larger blocs.
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DLN: Are we still in for more crypto winter?
ST: I think there’s more bad news to play out in the crypto world. It would be naive to think that SBF was the only bad actor.
We know from public record and from reporting that Binance is under investigation for a number of terrible things.
And rather comically, some of Binance’s defences are that they are too big to prosecute, which is an interesting strategy – it’s TradFi cosplay at this point.
‘Rather comically, some of Binance’s defences are that they are too big to prosecute – it’s TradFi cosplay at this point’
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The other issue is that crypto is really interconnected. If you think about the 2008 financial crisis and the regulations that followed it, a lot of that was about breaking interconnectivity, or at least being well aware of it happening.
When you create a financial system outside of the rules, you have this interconnected, incestuous situation where one thing going down rumbles a whole bunch of other things.
So with two factors being what they are, we’re probably not at the end of the shakedown in crypto.
DLN: What will the next phase of that crackdown be?
ST: The New York Department of Financial Services created a crypto licence. That’s where the Winklevoss twins and Grayscale got their licences.
But the NYDFS didn’t do a great job of creating the right framework, so now you have these companies all running into problems.
And these ones are a lot closer to retail investors. Once you give something a regulatory stamp, people assume it’s safer.
So the next phase of the crypto winter is going to cut a lot closer to retail investors. And that’s going to be harder for regulators to explain, because they’re closer to being on the hook for that.
With all of that, I think where we end up is with the rot being purged out for the system. Policymakers need to make sure there’s a framework in place to deal with a second round of crypto –a crypto spring, if you will.
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DLN: What should these frameworks look like?
ST: MiCA has its flaws, but it’s at least a template that says, “Where there are gaps we’re going to define regulation.”
The simplest way to regulate, which is where I think the US will move as well, is stablecoins. You want to start with the easy stuff. Regulators won’t want to repeat the mistakes of money market funds.
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They can say, stablecoins have to be 100% collateralised, no shenanigans. They could make issuers decide to be credit institutions or not.
And then you get into applying securities law, or securities-like law, to crypto, and the way to do that is to look at the fringe cases.
The big elephant in the room is Bitcoin, because everyone acknowledges it’s outside of what you can easily apply the rules to.
If crypto tokens or currency cannot fit within a framework, then they’re trying to subvert the framework, and they don’t get rewards for that.
Once a ruleset is created, it’s a lot easier to say, “Either play by the rules or don’t.”
DLN: Crypto won’t necessarily like that.
ST: There’s a part of crypto that likes the outlaw nature of it. But if you want crypto to be more institutionalised, you have to care about regulation.
You can’t have it both ways. If you want to be an outlaw, currency numbers go up and fraud is rife. You’re never going to get into the financial system that way.
There are those who want crypto to be a more mainstream asset class, and the price of admission for that is rules. I think you’re starting to see the industry accept that.
‘If you want crypto to be more institutionalised, you have to care about regulation’
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A lot of the conflict is that people don’t like the rules they’ve been offered. That’s fine.
I make a lot of fun of the crypto guys, but it’s not as if, when you propose new rules for banks or asset managers, they happily take them either.
Overall, what’s needed is to accept the regulations coming in, and accept that you’re never going to be able to define what that regulation is 100%.
Interview has been edited for length and clarity.