The US and Illinois need market clarity on crypto

Chicago is home to three of the world’s most important exchanges — the Chicago Mercantile Exchange (CME), Chicago Board Options Exchange (CBOE) and Chicago Board of Trade (CBOT) — and has built a global reputation as a leader in financial innovation.

Today, however, that reputation is in danger of slipping as the next generation of financial technology — digital assets — evolves (largely) outside our state.

To be sure, Chicago has formed solid roots in digital assets, including blockchain, cryptocurrency and Web 3.0, but not in the world-leading way it has with past innovations like financial futures, options trading and high frequency liquidity provision.

We have all the ingredients to lead in this next era — the talent, technology, experience and capital. We know how to build and run the world’s best, most advanced financial markets. Already, more than 300 blockchain and crypto-related startups call Illinois home, and digital assets startups have attracted more than $1.5 billion in venture capital investment. Chicago is a place where crypto could thrive.

But there’s an obstacle — a big one — blocking Chicago’s progress and jeopardizing our leadership on the global financial stage: Congress has yet to provide clear and coherent regulatory guidance for the digital assets industry.

As a fintech professor and longtime observer of financial markets, I believe in the potential for digital finance to power the global economy. Cryptocurrency, stablecoins and blockchain-based tokens represent a fundamentally new kind of finance. Unlike traditional banking systems that rely on centralized intermediaries, these technologies enable peer-to-peer transactions, smart contracts and decentralized recordkeeping, often with greater speed, enhanced transparency and lower costs.

Blockchain technologies have already begun to make the global financial system more transparent, more efficient and more accessible, and they hold the potential to better serve communities that traditional banking has left behind.

But innovation cannot thrive without regulation, and the persistent lack of regulatory clarity is stifling innovation. Entrepreneurs are left guessing which rules apply and which regulator might show up at their door, while consumers are more vulnerable to fraudulent activity by bad actors overseas. The United States (and Chicago) is less attractive to major financial institutions, startups and trading firms innovating in digital finance.

The aptly named CLARITY Act moving through the U.S. House of Representatives is a chance to change that. It is the single most important piece of legislation the digital asset industry has seen, providing a comprehensive framework for the industry and protecting consumers without unduly compromising innovation.

One of the bill’s key strengths is that it helps define how digital assets should be regulated. Not all cryptocurrencies function the same; some resemble traditional securities, while others function as commodities. CLARITY introduces much-needed coordination between the Securities and Exchange Commission, which traditionally oversees stocks and investment products, and the Commodity Futures Trading Commission (CFTC), which regulates commodities and derivatives — stabilizing the environment for continued innovation.

Importantly, CLARITY would also enable federal enforcement against illicit uses of crypto — such as money laundering and the financing of terrorism — by establishing robust know-your-customer and anti-money laundering protections within a transparent regulatory framework, which would protect consumers and foster trust in this promising industry.

Editorial: Crypto has a friend — or is it a frenemy? — in Donald Trump

In the absence of regulatory clarity, crypto companies are increasingly choosing friendlier jurisdictions — Dubai, Switzerland, Toronto and London. Companies that may prefer to return their operations to the United States are waiting on the sidelines, afraid of being penalized for not knowing the rules of the road in the U.S. That ends with the CLARITY Act.

Passing the CLARITY Act would send a strong message: that the United States intends to lead in blockchain and cryptocurrency. That we support entrepreneurs willing to take risks and consumers who deserve protection. That we’re ready to write the next chapter of American financial leadership.

With the right policy in Washington, D.C., much of that chapter can be written right here in Chicago. I urge members of Illinois’ congressional delegation to act decisively by supporting the CLARITY Act and building a solid framework for the next generation of finance to thrive in Illinois.

Benjamin E. Van Vliet, Ph.D, is an associate professor of finance and director of the Center for Strategic Finance at the Stuart School of Business at the Illinois Institute of Technology, where he teaches fintech and quantitative finance.