The stock market recovery from last year’s COVID-induced crash is testament to the unprecedented level of federal stimulus measures pumped into the economy over the past 12 months, but few asset classes have benefited more from a recovery in the financial markets than cryptocurrencies .
Bitcoin BTCUSD,
is up a whopping 548% in the last twelve months, while Ethereum ETHUSD,
the second most valuable cryptocurrency, according to FactSet, has gained about 690% during that time, compared to a 71% increase for the S&P 500. But the fate of this rally may depend heavily on President Joe Biden and his regulatory stance. government versus the burgeoning crypto economy, experts tell MarketWatch. Here are the top five regulatory issues facing Biden’s administration in the coming months and years that will have a major impact on cyrpto’s investors:
Who will be the controller of the currency?
The agency in charge of chartering and supervising national banks is typically one of the more obscure federal financial regulators. But OCC has caught the attention of the crypto community by advocating for integration between the cryptoeconomy and the old financial system under the brief leadership of former acting controller of the currency Brian Brooks, said Jackson Mueller, policy and government relations director at the crypto. Securrency consultancy.
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During his eight months as acting auditor, Brooks has issued several guidance letters confirming the ability of nationally chartered banks to serve as custodians of crypto assets and use a type of cryptocurrency called stablecoin to make payments, among other things. “The big problem is what happens to Brooks and his team’s guidance when someone else comes in,” Mueller told MarketWatch. “Are they going in a completely opposite direction and withdrawing that guidance?”
Stablecoins are a type of cryptocurrency that links its value to another asset. The most popular is Tether, pegged to the US dollar. The crypto community loves these instruments because they facilitate transactions between highly volatile digital currencies – some analysts argue that Bitcoin’s rally was made possible by aggressive issuance of new Tether tokens.
However, unlike currencies such as Bitcoin and Ether, stablecoins are often not decentralized, but are managed by separate companies and backed by assets held by traditional banks. Brooks guidelines serve to give federally chartered banks the green light to be custodians for stablecoins and use them for their own payments.
The crypto community was excited about reports that Biden would name Michael Barr, who served on the Treasury Department during the Obama administration, as the controller. Barr was associated with several fintech companies and was a member of an advisory board at Ripple, issuer of the cryptocurrency XRPUSD of the same name.
But Barr is reportedly no longer in the fight for the job after progressives in the administration protested.
Law professor Mehrsa Baradaran, an expert on the racial wealth divide, has emerged as the favorite chance to win the role, and crypto investors are less enthusiastic about this choice given the skepticism she has displayed in the past. relative to cryptocurrencies.
“While I share many of the concerns of the cryptocurrency industry regarding the failure 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 said in 2019. Senate Banking Committee. instead, Congress should charge the Federal Reserve with establishing a digital payment infrastructure available to all Americans.
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Are cryptocurrencies 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 claiming that these instruments have enabled the growth of a new “shadow” banking system that threatens the stability of the US financial system.
Michigan Democratic Representative Rashida Tlaib recently introduced a bill requiring stablecoins issuers to obtain a bank charter and obtain insurance from the Federal Deposit Insurance Corporation or hold reserves with the Federal Reserve ‘to ensure that all stablecoins can be easily converted into US dollars. , on request.”
Rohan Gray, president of the Modern Money Network, who helped set up the bill, compared stablecoins to money market mutual funds, which came under severe pressure during the 2008 financial crisis.
“We looked at the history of shadow banking and the examples where entities … would claim to have invented a tool that ran and talked like money, that could be used as money, that in most circumstances,” Gray told December. The Block. “But at times of crises, those claims proved hollow, became a huge source of systemic risk, and would inevitably be rescued in the name of consumer protection. The effect of that 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 stablecoins in the coming years.
How will the government combat crypto money laundering?
The most immediate regulatory issue that crypto investors will face is an impending decision by the Financial Crimes Enforcement Network – a division of the Treasury Department charged with combating money laundering and other financial crimes – on new requirements for banks and other intermediaries to record and verify customer identities for certain crypto transactions.
Jerry Brito of the Coin Center think tank says that in the closing days of the Trump administration, Treasury tried to speed up new rules that were “ ill-considered. ” New requirements would have allowed the government to get to know the owners of private crypto wallets and thus their full transaction history, even if that person had not done anything suspicious.
“Ever since Biden’s administration came in, they’ve been more respectful of FinCen, which I don’t think they ever wanted as much as [former Treasury Secretary] Steve Mnuchin, ”he said, adding that law enforcement was wary. The rules would encourage criminals to refrain from dealing with US-based exchanges known to cooperate in criminal investigations. “Biden’s government will take a more rational approach in the future,” said Brito, Coin Center’s executive director.
What will happen to the lawsuit against Ripple?
Gary Gensler, who is expected to be confirmed as chair of the Securities and Exchange Commission, will face many crypto-related problems – not least a lawsuit filed by the SEC against Ripple in December.
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 said publicly that they do not believe Bitcoin or Ethereum are securities to be registered, the lawsuit indicates that the SEC views Ripple differently.
“I am surprised that the lawsuit was not filed a long time ago because Ripple is very different from Bitcoin or Ethereum,” Angela Walch, law professor and cryptocurrency expert at St. Mary’s School of Law, told MarketWatch. “It’s not really a decentralized currency because you’ve essentially had one company running it.”
If the SEC triumphs in its suit, that will go a long way in helping determine which types of digital assets will be considered currencies and which ones will be considered securities, Walch added.
Will the SEC Approve Bitcoin ETFs?
Crypto enthusiasts applauded Gensler’s nomination to lead the SEC, given his history of teaching blockchain and digital currency at MIT’s Sloan School of Management. Coin Center’s Brito argued that his entry into the role of chairman will be good news for the many financial services firms trying to sell Bitcoin exchange-traded funds.
Several major financial services firms have filed applications to offer bitcoin ETFs, including Wisdom Tree, Morgan Stanley MS,
and VanEck. Theoretically, investors might prefer bitcoin ETFs as buying real bitcoin can be a hassle as investors need to set up digital wallets or move money to a crypto exchange. However, these ETFs can be bought and sold just like traditional stocks.
“Gary Gensler is someone who likes orderly markets,” said Brito. “What better way to allow investors to participate in this asset class in an orderly manner than with a well-regulated ETF.”
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