The recovery of the stock market from last year’s fall in COVID is a testament to the unprecedented level of federal stimulus pumped into the economy over the past twelve months, but few asset classes have benefited from a rise in financial markets more than cryptocurrencies.
Bitcoin BTCUSD,
has increased by an impressive 548% over the last twelve months, while Ethereum ETHUSD,
the second most valuable cryptocurrency has gained about 690% during this time, according to FactSet, compared to a 71% increase for the S&P 500. But the fate of this rally could largely depend on the regulatory position of the President Joe Biden and his growing crypto economy, experts tell MarketWatch. The following are the five biggest regulatory issues facing the Biden administration in the coming months and years, which will greatly affect cryptocurrency investors:
Who will be the driver of the currency?
The agency in charge of chartering and overseeing national banks is often one of the most obscure federal financial regulators. But OCC has caught the attention of the crypto community through its advocacy of integration between the crypto economy and the inherited financial system under the brief leadership of interim former currency controller Brian Brooks, Jackson Mueller said. director of government policy and relations at cryptographic consulting firm Securrency.
Read more: Fed Powell says bitcoin is more of a substitute for gold than the dollar
During his eight months as an auditor, Brooks issued several guidance letters stating the ability of nationally contracted banks to serve as custodians of cryptocurrencies and use a type of cryptocurrency called stablecoin to make payments, among other issues. . “The big problem is what happens to the guidelines issued by Brooks and his team when someone else comes in,” Mueller told MarketWatch. “Are they going in a completely opposite direction and overriding this guide?”
Stablecoins are a type of cryptocurrency that relates their value to some other asset. The most popular is Tether, pegged to the US dollar. The cryptographic community is fond of these instruments because they facilitate transactions between highly volatile digital currencies; some analysts argue that the Bitcoin rally has been allowed through the aggressive issuance of new Tether tokens.
Unlike currencies like Bitcoin and Ether, however, stable ones are not usually decentralized, but are managed by individual companies and are backed by assets from traditional banks. Brooks ’guidelines serve to give federally contracted banks the go-ahead to be stable custodians of currencies and use them for their own payments.
The cryptographic community was excited about reports that Biden would call Michael Barr, who served in the Treasury Department during the Obama administration, as an auditor. Barr had links with several fintech technology companies and was part of an advisory board to Ripple, the issuer of the eponymous XRPUSD cryptocurrency,
But it appears Barr is no longer in dispute over the job after progressives from the administration protested.
Law professor Mehrsa Baradaran, an expert on the racial wealth gap, has become the favorite of the odds of winning the role, and crypto investors are less excited about the decision, given the skepticism she has shown in the face. cryptocurrencies in the past.
“While I share many of the concerns of the cryptocurrency industry regarding the failures of the banking industry, I do not believe that cryptocurrency is the best solution to the problems of financial inclusion and equity in banking,” Baradaran told the Committee. Banking the Senate in 2019, arguing instead, Congress should commission the Federal Reserve to create a digital payment infrastructure available to all Americans.
Read more: Why the next recession could force the Federal Reserve to exchange green dollars for digital dollars
Cryptocurrencies are a threat to financial stability?
The OCC will not be the only financial regulator concerned about 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 American financial system.
Democratic Representative Rashida Tlaib of Michigan recently proposed a bill that would require issuers of stablecoins to obtain a bank letter and obtain insurance from the Federal Deposit Insurance Corporation or hold reservations with the Federal Reserve “to ensure that all stablecoins are they can easily be converted into U.S. dollars, on demand. ”
Rohan Gray, president of the Modern Money Network, which helped draft the bill, compared the stables to money market investment funds, which suffered great stress during the 2008 financial crisis.
“We were seeing the history of shadow banking and the examples where entities … would claim that they had invented an instrument that walked and talked like money, that could be used as money, could be considered about as safe. and stable as money circumstances, “Gray told The Block in December. “But then, in times of crisis, these claims turned out to be empty, became a massive source of systemic risk and would inevitably be rescued in the name of protecting consumers. The effect was to privatize profits to socialize losses.
This issue of financial stability means that other regulators, including the Federal Reserve and the Treasury Department, may try to regulate the stables in the coming years.
How will the government curb money laundering cryptography?
The most immediate regulatory issue facing crypto investors is the impending decision of the Financial Crimes Enforcement Network (a Treasury Department unit tasked with combating money laundering and other financial crimes) over the new requirements. so that banks and other intermediaries can keep records and verify them. customer identities for certain cryptographic transactions.
Jerry Brito, of the Coin Center think tank, says that in the waning days of the Trump administration, the Treasury tried to keep track of the new rules that “were not taken into account.” The new requirements would have allowed the government to know the owners of private cryptocurrencies and therefore their entire transaction history, even if that person had done nothing suspicious.
“Since the Biden administration came in, they’ve been more deferential with FinCen, which I think never wanted [former Treasury Secretary] Steve Mnuchin did, ”he said, adding that law enforcement was wary that the rules would encourage criminals to refrain from conducting transactions with U.S.-based exchanges that are known to cooperate with investigations. “The Biden administration 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 lawsuit?
Gary Gensler, who is expected to be confirmed as chairman of the Securities and Exchange Commission, will have many cryptography-related issues, including a lawsuit filed in December against Ripple by the SEC.
In its lawsuit, the SEC accused Ripple and executives Brad Garlinghouse and Christian Larsen of selling more than $ 1 billion in digital currency without registering with the SEC. While SEC officials have publicly said they do not believe Bitcoin or Ethereum are securities to be registered, the lawsuit indicates that the SEC sees Ripple differently.
“I was long surprised that the lawsuit wasn’t filed because Ripple is very different from Bitcoin or Ethereum,” Angela Walch, a law professor and cryptocurrency expert at St. Louis, told MarketWatch. Mary’s School of Law. “It’s not really a decentralized currency because you’ve had a single company that basically manages it.”
If the SEC wins its lawsuit, it will go a long way in defining what types of digital assets will be seen as currencies and which will be seen as securities, Walch added.
The SEC will approve bitcoin ETFs?
Cryptography enthusiasts applauded Gensler’s nomination to lead the SEC, given his history of teaching blockchain and digital currencies at MIT’s Sloan School of Management. Brito, of the Coin Center, argued that joining the role of president will be good news for many financial services companies trying to sell traded funds in exchange for Bitcoin.
Several large financial services companies have applied to offer bitcoin ETFs, including Wisdom Tree, Morgan Stanley MS,
and VanEck. Theoretically, investors might prefer bitcoin ETFs because buying real bitcoins can be a hassle, as investors have to set up digital wallets or spend money on a cryptocurrency exchange. These ETFs, however, could be bought and sold in a similar way to traditional stocks.
“Gary Gensler is someone who likes tidy markets,” Brito said. “What better way to allow investors to participate in this asset class in an orderly manner than to have a well-regulated ETF.”
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