The stock market recovery from last year’s COVID-driven slide is testament to the unprecedented level of federal stimulus injected into the economy over the past twelve months, but few asset classes have benefited from a rebound in financial markets. more than cryptocurrencies.
has risen a staggering 548% over the past twelve months, while Ethereum ETHUSD,
the second most valuable cryptocurrency, has gained about 690% during that time, according to FactSet, compared to a 71% increase for the S&P 500. But the fate of this rally could largely depend on President Joe Biden and stance. regulatory authority from his administration to the burgeoning crypto economy, experts tell MarketWatch. Here are the top five regulatory questions the Biden administration will face in the coming months and years that will greatly impact crypto investors:
Who will be the Comptroller of Currency?
The agency in charge of the constitution and supervision of national banks is often one of the more obscure federal financial regulators. But OCC has drawn the attention of the crypto community through its advocacy of integration between the crypto economy and the legacy financial system under the brief leadership of former interim currency controller Brian Brooks, said Jackson Mueller, director of policy and relations. Governments in the Securrency Cryptocurrency Consulting.
Read more: Fed’s Powell Says Bitcoin Is More Of A Substitute For Gold Than The Dollar
During his eight months as interim controller, Brooks issued several letters of guidance affirming the ability of nationally licensed banks to act as custodians of crypto assets and to use a type of cryptocurrency called stablecoin to make payments, among other issues. “The big problem is what happens to the guidance issued by Brooks and his team when someone else walks in,” Mueller told MarketWatch. “Are they going in a completely opposite direction and overriding that guidance?”
Stablecoins are a type of cryptocurrency that links its value to some other asset. The most popular is Tether, pegged to the US dollar. The crypto community likes these instruments because they facilitate transactions between highly volatile digital currencies; Some analysts argue that Bitcoin’s rally has been made possible by the aggressive issuance of new Tether tokens.
However, unlike currencies like Bitcoin and Ether, stablecoins are often not decentralized, but run by individual companies and backed by assets from traditional banks. The Brooks guide is to give federally authorized banks the go-ahead to be custodians of stablecoins and use them for their own payments.
The crypto community was excited about reports that Biden would appoint Michael Barr, who served in the Treasury Department during the Obama administration, as comptroller. Barr had ties to several fintech companies and served on an advisory board at Ripple, issuer of the cryptocurrency of the same name XRPUSD,
But Barr is reportedly no longer in contention for the job after progressives in the administration protested.
Law professor Mehrsa Baradaran, an expert on the racial wealth gap, has become the front-runner to win the role, and crypto investors are less excited about this choice, given the skepticism she has shown towards cryptocurrencies in the past.
“While I share many of the cryptocurrency industry’s concerns regarding the failures of the banking industry, I do not believe that cryptocurrency is the best solution to financial inclusion and equity issues in banking,” Baradaran told the Committee. Senate Banking in 2019, arguing instead, Congress should entrust the Federal Reserve with creating a digital payments infrastructure available to all Americans.
Read more: Why the Coming Recession Could Force the Federal Reserve to Trade Greenbacks for Digital Dollars
Are cryptocurrencies a threat to financial stability??
The OCC will not be the only financial regulator concerned about the use of stable currencies, 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 Rep. Rashida Tlaib of Michigan recently proposed a bill that would require stablecoin issuers to obtain banking status and obtain insurance from the Federal Deposit Insurance Corporation or hold reserves in the Federal Reserve “to ensure that all stablecoins can be easily converted into US dollars, on demand. ”
Rohan Gray, chairman of the Modern Money Network, who helped draft the bill, has compared stablecoins to money market mutual funds, which came under great strain during the 2008 financial crisis.
“We were looking at 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 like money, could be considered roughly as safe and stable as money. money circumstances, ”Gray told The Block in December. But then, in times of crisis, those claims turned out to be hollow, became a massive source of systemic risk, and would inevitably be bailed out in the name of consumer protection. The effect of that was to privatize the gains to socialize the losses. ”
This financial stability issue means that other regulators, including the Federal Reserve and the Treasury Department, may seek to regulate stablecoins for years to come.
How will the government stop crypto money laundering?
The most immediate regulatory issue crypto investors will have to face is an imminent decision by the Financial Crimes Enforcement Network, a unit of the Treasury Department tasked with combating money laundering and other financial crimes, on new requirements for banks and others to intermediaries maintain records and verify customer identities for certain cryptographic transactions.
Jerry Brito, of the think tank Coin Center, says that in the last days of the Trump administration, the Treasury tried to speed up the new rules that were “badly considered”. The new requirements would have allowed the government to know the owners of private crypto wallets and thus their complete transaction history, even if that person had not done anything suspicious.
“Since the Biden administration came along, they have been more deferential to FinCen, who I don’t think would ever want this as much as [former Treasury Secretary] Steve Mnuchin did, ”he said, adding that law enforcement agencies were suspicious that the rules would encourage criminals to refrain from transacting with US-based exchanges known to cooperate with criminal investigations. “The Biden administration will take a more rational approach going forward,” said Brito, who is the CEO of 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 to deal with many crypto-related issues, including 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. While SEC officials have publicly said that they do not believe that Bitcoin or Ethereum are securities that need to be registered, the lawsuit indicates that the SEC views Ripple differently.
“I was surprised that the lawsuit was not filed in a long time because Ripple is so different from Bitcoin or Ethereum,” Angela Walch, a law professor and cryptocurrency expert at St. Mary’s Law School, told MarketWatch. “It’s not really a decentralized currency because you’ve basically had just one company running it.”
If the SEC is victorious, that will go a long way in helping to define which types of digital assets will be considered currencies and which will be considered securities, Walch added.
Will the SEC approve bitcoin ETFs??
Cryptocurrency 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. Coin Center’s Brito argued that his accession to the position of president will be good news for the many financial services companies trying to sell Bitcoin-traded funds.
Several major financial services companies have submitted applications to offer bitcoin ETFs, such as Wisdom Tree, Morgan Stanley MS,
and VanEck. In theory, investors might prefer bitcoin ETFs because buying real bitcoins can be a hassle, as investors have to set up digital wallets or transfer money to a cryptocurrency exchange. However, these ETFs could be bought and sold in much the same way as traditional stocks.
“Gary Gensler is someone who likes orderly markets,” Brito said. “What better way to enable investors to participate in this asset class in an orderly manner than to have a well-regulated ETF.”
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