Source: This Is Bitcoin’s Turning Point: Custody, Stablecoins & The New Crypto Rules l Mike Belshe

Compiled & Edited by: Daisy, ChainCatcher

Editor’s Note:

In the United States, over 50 million people hold digital assets, and the debate over how to regulate these assets continues. With a shift in political winds, the crypto industry is facing new legislative opportunities. BitGo CEO Mike Belshe firmly believes that this is a critical moment for the industry to push for reasonable regulation and establish a stable market structure.

In this interview, Mike and host Scott Melker delve into the implications of the repeal of SAB 121, stablecoin regulation, the fight against financial crime, the status of self-custody wallets, and the construction of future market structures. He calls on the government to adopt clear, reasonable, and open regulatory strategies to build a true 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. How do you view this change? Does it signal a positive development for the industry?

Mike: Absolutely. This is a hopeful moment. We have finally arrived at a political environment that could drive reasonable regulation and legislation.

SAB 121 was never a compliance procedure; it was neither reviewed by Congress nor subjected to adequate public discussion. It restricted many new institutions from participating in crypto custody services. Although both houses of Congress passed a bill to repeal it, it was ultimately vetoed by the president, but the response from the entire industry was strong.

In fact, this suppression has prompted us to engage more actively in politics. People realize that to achieve reasonable regulation, we must proactively participate in policy-making. This is a turning point and a mobilization.

We hope all policymakers will join the dialogue. If they have concerns about the industry, we are willing to help address them. We are not against regulation; we want to participate in building a more mature system.

On Financial Crime and Regulatory Misalignment

Scott: You mentioned that the problem lies not entirely with regulation but with the government's approach to financial crime. Can you elaborate?

Mike: The current issue is that the U.S. law enforcement system relies too heavily on the financial system itself as a "detector." Essentially, it is indirectly searching for crime through the banking system rather than directly addressing the crime itself.

Take the fentanyl issue as an example; the real solution is to strengthen street enforcement and strictly enforce laws against drug dealers, rather than asking us crypto companies what we are doing.

Once, a regulator asked me, "How do you prevent fentanyl funds from flowing?" I said, that is not our responsibility. You should not expect the financial system to take on the role of criminal law enforcement. Even more absurdly, when I suggested that regulators unify information collection and centralize investigations, they said, "That would violate privacy." The reality is that they outsource this work to banks and crypto companies, leading to fragmented information and worse enforcement outcomes.

This approach is inefficient, ineffective, and unfair.

Is Crypto Really a Hotbed for Crime?

Scott: What is your view on the accusations that cryptocurrencies fuel crime? After all, illegal transactions primarily rely on cash.

Mike: Absolutely correct. Real criminals have long since stopped using Bitcoin because Bitcoin transactions are traceable and can easily expose them.

Data shows that 99% of illegal financial activities are still conducted using U.S. dollar cash. We should discard the erroneous notion that crypto equals crime. More and more regulators are gradually accepting this fact. More importantly, even within the traditional financial system, issues of money laundering and fraud have not been well addressed. This indicates that the problem lies within the system itself, not with crypto assets.

The current regulatory logic is to monitor everyone, including good and bad actors, and then try to identify suspects from there. This approach is too far removed from criminal behavior and is fundamentally inefficient.

The Necessity of Policy Protection for Self-Custody Wallets and Regulatory Boundaries

Scott: Considering the potential changes in the political landscape, do you think it is necessary to legislate the protection of self-custody rights?

Mike: I completely agree that legal protection is needed. About a month ago, I represented BitGo at the White House crypto summit, where around thirty industry representatives were present. When everyone took turns speaking, two-thirds expressed the same sentiment: gratitude to the government for beginning to pay attention to this industry and for the executive orders, but we need to turn these commitments into law.

This administration has indeed acted very quickly, and the pace of policy implementation is surprising. They understand that time is of the essence, with midterm elections approaching and the political environment potentially shifting, so they are pushing to advance relevant reforms. Once the U.S. establishes a clear self-custody protection mechanism, other countries will follow suit, laying a long-term foundation for the global crypto industry.

Scott: You mentioned that you handle business and political matters even while on vacation. Has political engagement become part of your daily work?

Mike: Yes. In the past, we often said that business should not involve politics, fearing it would alienate some people. But the crypto industry is different. Today, we are facing real policy changes involving fundamental issues like stablecoins, market structure, and reserve transparency.

We maintain ongoing communication with regulators, and they are willing to listen. For me, this is not about transforming from a businessman into a politician, but about doing everything we can to ensure that good policies are correctly understood and adopted.

The Controversy of Stablecoin Regulation and the Struggle with Traditional Banks

Scott: Should stablecoins have interest-bearing functions, or is the regulation an overreaction due to the Luna incident?

Mike: There is indeed fear, but a larger part of the reason is the interference of traditional financial interests. Take Europe’s MiCA regulation as an example; it requires stablecoins to deposit most of their reserves in banks rather than directly investing in government bonds. On the surface, this appears to be for regulatory safety, but in reality, it is banks protecting their own turf.

In the U.S., there is a similar trend. A senator told me that some bank CEOs proposed that stablecoins should not purchase government bonds and should only hold cash. But in reality, government bonds and cash are almost equivalent—this is clearly an attempt to lock funds back into the banking system. Of course, the interest on stablecoins does bring new issues that need regulation. However, this mechanism is not unsolvable; we can refer to the development history of money market funds in the 1970s.

Scott: Do you think the real risk of interest-bearing stablecoins lies in technology or regulation?

Mike: If we are discussing 1:1 asset-backed stablecoins rather than algorithmic stablecoins, then the core issue is transparency and auditing.

From a technological perspective, there are indeed several risks:

• Blockchain and smart contracts are still emerging technologies;
• Private key management is not mature and can easily go out of control due to human error or fraud;
• Currently, stablecoins are not protected by FDIC insurance.

Additionally, some worry about a bank run scenario for stablecoins. But I think that is an exaggeration. In the past, Tether was able to quickly redeem large amounts during significant redemptions and never failed to redeem. We cannot hinder technological progress due to regulatory lag. Instead, we should guide the stablecoin industry towards greater transparency and safety through reasonable legislation.

Scott: Tether once redeemed $7 billion in a single day, which even large banks find difficult to achieve.

Mike: Tether has done well. It was once questioned, but it has gradually built trust. Many people ask: Why not have Deloitte audit it? In fact, it is the auditing firms that are unwilling to take the risk.

Currently, large auditing firms are hesitant to engage with crypto projects because they fear being held accountable. The collapse of Arthur Andersen due to the Enron scandal (Enron was once one of the largest energy, natural gas, and telecommunications companies in the world) has made the entire industry cautious. To solve this problem, we need a clear regulatory framework that gives auditing firms the confidence to participate.

I believe Tether now has sufficient scale and transparency; completing an audit is just a matter of time.

Regulatory Capture: Is Policy a Tool for Competition or an Industry Barrier?

Scott: U.S. stablecoin issuers are using policy measures to squeeze out overseas competitors like Tether, which goes beyond normal business competition.

Mike: This is a classic example of regulatory capture.

The original intent of regulation is to protect market and consumer safety, but in reality, industry giants often lobby the government to turn regulation into a set of "custom rules" that help them eliminate competitors. For example, some current legislative proposals explicitly require that only U.S. companies holding U.S. government bonds can issue compliant stablecoins.

We at BitGo are an American company, and from a business perspective, such rules would actually benefit 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 compliantly by partnering with U.S. banks; there is no need to block the market.

Mike: I completely agree. Another case is that some banks want to legislate that stablecoin settlements must go through the banking system and cannot directly use blockchain networks.

It sounds like it is for "safety," but in reality, it is to regain control over the flow of funds. However, stablecoins using government bonds as reserves are inherently safer than bank loan structures. Moreover, they offer higher transparency and faster settlement speeds.

Scott: Regulatory capture is also evident in the market structure bill. What is your view on this struggle?

Mike: The "market structure" bill is an important issue that is being advanced, but I worry it will become a tool for interest groups to set the rules. This bill should clarify three things: compliance, investor protection, and the foundational market structure. However, many industry participants are starting to exploit this legislative opportunity to tailor a set of favorable rules for themselves, excluding others. We cannot allow this legislative approach. If regulation becomes a tool rather than a barrier, the result will inevitably be monopoly and stagnation of innovation.

Restructuring Market Structure: Custody and Trading Must Be Separated

Scott: You often say that exchanges should not custody user assets. Why is this important in the crypto industry?

Mike: This relates to systemic risk.

In the traditional financial system, stock exchanges (like the NYSE and NASDAQ) only facilitate trades, while assets are managed by custodial banks, and clearing is done by clearinghouses. The division of responsibilities is clear, which helps prevent single points of failure or moral hazard. In the crypto industry, many exchanges handle everything: they both custody assets and facilitate trades, as well as handle clearing and market making. This structure essentially concentrates all risks in one institution.

If this institution encounters problems, like FTX, the entire system can collapse. Past chain reactions of failures (FTX, Celsius, Voyager, etc.) were all due to structural design flaws.

Scott: In other words, separating custody from trading should be a key focus of regulatory reform.

Mike: Yes. Especially in the digital asset space, the responsibility for custody is greater. Once a user's private key is stolen or lost, it cannot be recovered. In traditional financial assets, at least you can remedy the situation through court orders or by reissuing stocks.

We have seen too many platforms collapse due to excessive leverage, account confusion, and unclear custody. If we want to establish a robust and sustainable crypto financial system, separating custody is the top priority.

The Gap Between Asset Tokenization and Real-World Implementation

Scott: Real-world asset tokenization (RWA) is very popular. What are your thoughts? Does BitGo have any related plans?

Mike: This is an important direction for the next phase of the crypto industry, but implementation is not as simple as it seems.

Blockchain technology certainly has many advantages, but it should not be seen as a universal solution. Many people mistakenly believe that simply moving traditional financial assets onto the blockchain will automatically enhance efficiency and reduce costs. But let's not forget that the complexity of traditional financial markets arises from the enormous capital flow and compliance requirements for global circulation.

Take the U.S. capital markets as an example; brokers may only earn a few cents, but their daily trading volume is extremely high, with a stable system and controllable risks. This cannot be easily replaced by a simple smart contract. We at BitGo also see the potential of RWA, which is why we acquired a company called Brassica. It has complete functions for issuance, custody, and transfer agency, capable of building a compliant on-chain asset platform.

Who will dominate this space in the future? Traditional finance has the advantage of distribution channels, but tech companies have speed and technological advantages. The ultimate winner may be those who can find a path to integrate both.

But regardless of who ultimately leads, the beneficiaries of this transformation will be the 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 moving in that direction. We are now seeing at least three positive signals:

• Regulators are willing to listen to industry voices rather than directly suppressing them;
• The focus of law enforcement is returning to fraud and information disclosure, rather than broad-based crackdowns;
• Legislators are beginning to understand the essence of technology, rather than simply equating it with criminal tools.

We still need to continue working hard, especially in the areas of leveraged trading and derivatives. If regulation lags, the next bull market could very likely trigger another round of crises. We now have the opportunity to do better, and we have the responsibility to seize this opportunity firmly.

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