The stock market recovery from last year’s COVID crash is testament to the unprecedented level of federal stimulus injected into the economy in the past twelve months, but few asset classes have benefited more from a recovery in the financial markets than cryptocurrencies.
Bitcoin BTCUSD,
increased by an impressive 548% over the last twelve months, while Ethereum ETHUSD,
the second most valuable cryptocurrency, gained about 690% during that time, according to FactSet, compared to a 71% increase for the S&P 500. But the fate of this high may depend a lot on President Joe Biden and the regulatory stance government in relation to the burgeoning cryptographic economy, experts tell MarketWatch. Here are the top five regulatory issues that the Biden management will face in the coming months and years that will have a major impact on Cyrpto investors:
Who will be the Currency Controller?
The agency charged with chartering and supervising national banks is typically one of the most obscure federal financial regulators. But the OCC has drawn the attention of the cryptographic community through its defense of the integration between crypto-economics and the legacy financial system under the brief leadership of former currency controller Brian Brooks, said Jackson Mueller, director of government policy and relations crypto consultancy Securrency.
Read More: Fed’s Powell says bitcoin is more a substitute for gold than the dollar
During his eight months as an interim controller, Brooks issued several letters of guidance stating the ability of nationally licensed banks to serve as custodians of crypto assets and to use a type of cryptocurrency called stablecoin to make payments, among other issues. “The big question is what happens to the guidance issued by Brooks and his team when someone else arrives,” Mueller told MarketWatch. “Do they go in a completely opposite direction and terminate that orientation?”
Stablecoins are a type of cryptocurrency that pegs its value to some other asset. The most popular is the Tether, indexed to the US dollar. The cryptographic community likes these instruments because they facilitate transactions between highly volatile digital currencies – some analysts argue that Bitcoin’s recovery was made possible by the aggressive issuance of new Tether tokens.
Unlike currencies like Bitcoin and Ether, however, stablecoins are often not decentralized, but managed by individual companies and secured by assets held by traditional banks. Brooks’ guidance serves to give banks licensed by the federal government the green light to be custodians of stablecoins and to use them in their own payments.
The cryptographic community was thrilled by reports that Biden would appoint Michael Barr, who served in the Treasury Department during the Obama administration, as controller. Barr had connections with several fintech companies and served on an advisory board to Ripple, the issuer of the cryptocurrency of the same name XRPUSD,
But Barr is no longer in the running for office after the government’s progressives protested.
Law professor Mehrsa Baradaran, an expert on the difference in racial wealth, has emerged as the favorite to win the role, and crypto investors are less enthusiastic about this choice, due to the skepticism she has shown about cryptocurrencies in the past.
“Although I share many of the concerns of the cryptocurrency industry regarding the failures of the banking sector, I do not believe that cryptocurrency is the best solution to the problems of financial inclusion and equity in the banking sector,” Baradaran told the Senate Banking Committee in 2019. , arguing instead, Congress should instruct the Federal Reserve to create a digital payment infrastructure available to all Americans.
Read More: Why the coming recession may force the Federal Reserve to exchange greenbacks for digital dollars
Cryptocurrencies are a threat to financial stability?
The OCC will not be the only financial regulator concerned with the use of stablecoins, given the growing number of observers who claim that these instruments have allowed the growth of a new “shadow” banking system that threatens the stability of the US financial system.
Democratic MP Rashida Tlaib of Michigan recently proposed a bill that would require issuers of stablecoins to obtain a bank license and obtain insurance from the Federal Deposit Insurance Corporation or maintain reserves in the Federal Reserve “to ensure that all stablecoins can be readily converted to United States dollars, on demand. ”
Rohan Gray, president of the Modern Money Network, which helped draft the bill, compared stablecoins to money market mutual funds, which went through great stress during the 2008 financial crisis.
“We were examining the history of the shadow banking system and the examples in which entities … claim to have invented an instrument that walked and talked like money, which could be used as money, could be considered almost as safe and stable as money in most circumstances ”Gray told The Block in December. “But then, in times of crisis, these claims turned out to be empty, became a huge source of systemic risk and, inevitably, would be rescued in the name of protecting consumers. The effect of this was to privatize the gains to socialize the losses. ”
This issue of financial stability means that other regulators, including the Federal Reserve and the Department of the Treasury, may try to regulate stable currencies for years to come.
How will the government control money laundering cryptography?
The most immediate regulatory issue that crypto investors will face is an imminent decision by the Financial Crimes Enforcement Network – a unit of the Treasury Department charged with fighting money laundering and other financial crimes – about new requirements for banks and other intermediaries to maintain records and verify customer identities for certain cryptographic transactions.
Jerry Brito, of the Coin Center think tank, says that in the last days of the Trump administration, the Treasury tried to accelerate new rules that were “badly considered”. New requirements would have allowed the government to meet the owners of private cryptographic wallets and, therefore, their entire transaction history, even if that person had not done anything suspicious.
“Since the Biden administration arrived, they’ve been more respectful of FinCen, which I think I’ve never wanted as much as [former Treasury Secretary] Steve Mnuchin did that, ”he said, adding that the police were cautious as the rules would encourage criminals to refrain from dealing with US-based exchanges that are known to cooperate with criminal investigations. “The Biden government will take a more rational approach in the future,” said Brito, who is the executive director of the Coin Center.
What will happen to the Ripple process?
Gary Gensler, who is due to be confirmed as chairman of the Securities and Exchange Commission, will have many issues related to cryptography to address – one of which is a lawsuit filed in December against Ripple by the SEC.
In its complaint, the SEC accused Ripple and its executives Brad Garlinghouse and Christian Larsen of selling more than $ 1 billion in digital currency without registering with the SEC. Although SEC officials have publicly said that they do not believe Bitcoin or Ethereum are securities that should be registered, the lawsuit indicates that the SEC sees Ripple differently.
“I was surprised that the lawsuit was not opened long ago because Ripple is very different from Bitcoin or Ethereum,” Angela Walch, a law professor and cryptocurrency specialist at St. Mary’s School of Law, told MarketWatch. “It is not a truly decentralized currency because you had a single company essentially running it.”
If the SEC is successful in its lawsuit, it will go a long way in defining which types of digital assets will be seen as currencies and which will be seen as bonds, Walch added.
SEC to approve bitcoin ETFs?
Crypto enthusiasts applauded Gensler’s appointment to lead the SEC due to his history of teaching blockchain and digital currencies at MIT’s Sloan School of Management. Coin Center’s Brito argued that his rise to the position of chairman of the board will be good news for many financial services firms that are trying to sell Bitcoin exchange-traded funds.
Several major financial services companies have submitted requests to offer bitcoin ETFs, including Wisdom Tree, Morgan Stanley MS,
and VanEck. Theoretically, investors may prefer bitcoin ETFs because buying real bitcoin can be a nuisance, as investors have to set up digital wallets or transfer money to a crypto exchange. These ETFs, however, could be bought and sold in much the same way as traditional stocks.
“Gary Gensler is someone who likes organized markets,” said Brito. “What better way to allow investors to participate in this asset class in an orderly way than to have a well-regulated ETF.”
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