BitGo Warns US Market Structure Risk Increases After Clarity Act Stalls

BitGo's CEO, Mike Belshe, has warned of increased risk to the US market structure due to the failure of the Clarity Act in the Senate. The act, which aimed to provide clarity on digital asset market structure, stalled in September, leaving the market exposed to systemic risks. Belshe highlights that digital asset firms, such as Coinbase, are combining exchange, brokerage, and custody functions, which concentrates custody and credit risk, potentially leading to a crisis akin to the 2008 collapse of Lehman Brothers. He emphasizes that the lack of legal clarity raises the risk of a breakdown at a central market venue, which could pull down broader market activity.

Belshe argues that as more financial activity goes digital, firms that combine these functions are becoming the core of the market rather than a peripheral service provider. He notes that a breakdown at such a firm would not remain isolated and could have far-reaching consequences. The BitGo CEO also mentions that banks and other traditional financial groups are likely to move more slowly due to regulatory pressure, including a possible return of Operation Chokepoint 2.0.

Belshe believes that the absence of legal clarity leaves no formal market structure to mitigate concentration risk. However, he adds that BitGo can continue operating without the legislation, citing the company's 13 years of experience in crypto custody.