NYT: "High Interest Rates on Crypto Platforms Causing Disturbance to Banks" - CEO of Crypto Bank Avanti Fights Back

On Sunday, The New York Times published an article about the development of the cryptocurrency industry. The article's introduction claims that the explosive growth of companies offering cryptocurrency loans and high-yield deposit accounts is disrupting the banking industry, leading regulatory agencies to scramble to keep up with these companies. However, Caitlin Long, the CEO of Avanti Bank, holds many different views on this article.

The New York Times' Criticism of the Crypto Industry

This article first introduces a blockchain financial startup company - BlockFi, which offers credit cards, loans, and interest-bearing accounts. However, BlockFi does not operate in US dollars, but in digital currency, aiming to replace the traditional banking system and become a new generation of emerging financial institutions.

The article states: "Cryptocurrencies entering the banking industry are causing concern for state and federal regulatory agencies as well as some members of Congress. This technology is rapidly and unpredictably disrupting the financial services sector, leaving regulatory agencies far behind, which could make consumers and financial markets vulnerable."

In addition to regulatory issues with these emerging financial institutions, the article also mentions that many people currently view stablecoins as a rather unsafe means of capital storage. Federal Reserve Chairman Powell also stated in Congress in July: "Our nation has a tradition that public money should be stored in very safe assets, but stablecoins do not possess this feature."

DeFi platforms are also a key focus of this article, as these platforms mostly operate entirely outside the regulatory system, and most financial transactions are carried out through smart contracts, eliminating the need for human intermediaries in the traditional financial system. Democratic Senator Elizabeth Warren stated in an interview: "The crypto industry is the new shadow banking system, offering many of the same services but without the consumer protections or financial stability functions of traditional financial systems."

Views and Rebuttals from Regulatory Authorities

However, shortly after the publication of this article, Caitlin Long, CEO of Avanti Bank, expressed her views on the article on her Twitter. Caitlin Long stated: "'Anti-crypto forces' are trying to view all crypto industries in the same light. While the bad parts should indeed be called out, this article overlooks the existence of compliant companies."

Caitlin Long used her own company, Avanti Bank in Wyoming, as an example. The bank was established in October 2020, providing custody of digital assets, banking, and payment solutions. Caitlin Long explained: "Wyoming's special bank charter does not allow for 'crypto deposits.' 'Deposits' have a specific meaning in banking: banks can only accept legal tender deposits, not cryptocurrencies. This is a crucial distinction. Regulated banks can provide custody services for cryptocurrencies but cannot accept deposits other than legal tender. The article overlooks this key point - it's like a firewall protecting the Federal Reserve's payment system from exposure to anything outside the US dollar."

However, Caitlin Long also acknowledged that many crypto intermediaries have introduced some unethical practices from traditional finance, such as information asymmetry and excessively high leverage in rehypothecation. Almost no crypto intermediaries disclose information about their solvency, nor is it known if their reserve and capital buffers are sufficient. Consumers using leveraged products also have the right to know the liquidation risks associated with using leveraged contracts. If derivative platforms are willing to disclose the probability of risks, fewer people will use them.

Caitlin Long said: "There is a reason why regulated US crypto derivative platforms only offer about 2.5x leverage. Unregulated platforms recently reduced their maximum leverage from 125x to 20x - still far higher than the leverage allowed by regulated US platforms. Considering these facts, it makes sense why regulatory agencies are so concerned."

However, Caitlin Long believed that the article also overlooked the risks of existing banks that have been approved by regulatory agencies to enter the crypto industry. Caitlin Long stated: "Existing banks do not have sufficient knowledge of the crypto industry - think about how many top crypto developers work for traditional banks? Secondly, almost every bank has information technology and operational processes that settle books and records only once a day. However, cryptocurrency transactions settle in minutes in an irreversible manner."

Furthermore, Caitlin Long holds a rather positive attitude towards DeFi. She believes that in terms of disclosure and transparency, DeFi platforms outperform centralized crypto intermediaries or traditional financial institutions, and most DeFi users are less likely to encounter information asymmetry issues.