Crypto toddlers have a tantrum as US threatens to impose adult supervision
America appears determined to end the “wild west” phase of the digital currency industry, signaling a fundamental realignment with serious implications for current market leaders.
Last week, Representative Don Beyer (D-VA) introduced a bill intended in part to “provide for the regulation of digital assets”. The 58-page bill, which Beyer calls the Digital Asset Market Structure and Investor Protection Act, aims to add much-needed adult oversight to the currently free-wheeling cryptocurrency industry.
Beyer’s bill covers many areas, including the creation of statutory definitions for digital assets and digital securities, with oversight to be provided (respectfully) by the United States Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
Digital assets / securities would also be classified as “monetary instruments” which would make them subject to the anti-money laundering (AML), record keeping and reporting requirements of the Bank Secrecy Law. All digital asset transactions not recorded on a public ledger should be reported to a registered digital asset trading repository within 24 hours to reduce the likelihood of fraudulent activity.
The growing stablecoins industry would not escape scrutiny, as Treasury Secretary Janet Yellen would be given full powers to authorize or prohibit stablecoins denominated in USD or other fiat currencies. The bill would also allow the Federal Reserve to issue its own central bank digital currency (CBDC) and clarify that rival stablecoins are not legal tender in the United States.
Beyer presented his legislative proposal as a way to provide “a legal and regulatory environment that fosters this kind of innovation and growth”. Beyer called the current situation “ambiguous and dangerous for investors and consumers” due to “widespread fraud, theft and manipulation of the market”. Beyer has also sounded the alarm over the growing association of digital currencies with ransomware attacks, naming BTC as “the currency of choice” for malicious attackers.
Federal patience is dwindling
While Beyer’s bill is far from being passed, there is no doubt that the federal government has given up on waiting for the digital currency industry to evolve from its prolonged adolescent state. The bipartisan infrastructure bill recently approved by Congress contains serious financial implications for digital currency brokers and traders, while new SEC chairman Gary Gensler has signaled his willingness to tackle digital currency fraud. consumption linked to digital currency.
Washington’s new focus on digital currency has already sparked some sort of turf war between the CFTC and the SEC after some current and former CFTC leaders claimed dominance over the surveillance of digital currency assets. Former CFTC chairman Christopher Giancarlo kicked off the Crips v. Bloods by tweeting that “only one US regulator has experience regulating markets for #Bitcoin and #Crypto and it’s not @SECGov”.
Only one US regulator has experience in regulating markets in #Bitcoin & #Crypto and it’s not @SECGov. He is @CFTC. Yes #BidenAdministration is serious about sane #Cryptocurrency #regulation, he must appoint a CFTC #President.
– Chris Giancarlo (@giancarloMKTS) August 4, 2021
Current CFTC Commissioner Brian Quintenz went on to tweet that “The SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold, oil… or crypto assets “.
Just to be clear here, the SEC has no authority over pure commodities or their trading platforms, whether those commodities are wheat, gold, oil … or #crypto assets.
– Brian Quintenz (@CFTCquintenz) August 4, 2021
Compared to hyperbolic antipathy to the fiscal component of the infrastructure bill, the digital currency industry’s reaction to Beyer’s bill has been more cautious, with some observers saying they would welcome the imposition of ‘a regulatory order. Other stakeholders have expressed concern, particularly over the stablecoin provisions, which could mark the end of the artificial price pumping that has inflated the valuations of tokens such as BTC, ETH and XRP.
Stable coins were identified as a threat to the existing financial system in a recent academic article by Gary Gorton, professor of finance at the Yale School of Management, and Jeffery Zhang, lawyer on the board of governors of the Federal Reserve. The document, titled “Taming Wildcat Stablecoins,” accuses stablecoins to present “systemic risks” to the current financial system.
The authors compare stablecoins to an updated version of “private money” that circulated before the passage of the US National Bank Act of 1863. This era of “free banking” saw the trade in private banknotes lower and lower as one moved away from their geographic point of origin, not to mention the frequent bank rushes that ruined uninsured noteholders who were slow to join the rush for redemptions.
While the prices of stablecoins may be less dependent on geography, the authors conclude that stablecoins are “not independent of the perceived risk of their supporting assets.” This is particularly relevant for stablecoin Tether (USDT), which recently revealed details of the reserves supporting its $ 62 billion market cap that raised infinitely more questions than it answered.
The authors offered the US government two ways to proceed. The first is to turn stablecoins into the equivalent of public money by (a) requiring them to be issued through FDIC-insured banks or (b) requiring stablecoins to be backed by US Treasury securities or reserves at the central bank.
The second option would see the Federal Reserve issue its own CBDCs and tax stablecoins, mimicking the strategy that ended the “free banking” era. Call us crazy, but it is hard to see the Fed not taking the option that allows it to retain its monopoly on the issuance of greenbacks.
If Beyer’s bill is approved, and Yellen exercises his newfound authority to ban Tether, USDC, and their ilk from the US shores – and ban any US-based company from trading in non-stable coins. Approved – The digital currency market would undergo a serious realignment which could include strong growth in stablecoins based outside the US and denominated in fiat currencies other than USD.
Stablecoins started out as a way for exchanges based outside the United States to onboard customers without using U.S. financial channels. These same exchanges are known to fuel token valuation by offering excessive leverage and then zeroing traders through unplanned “maintenance” during market dips. No wonder Binance leader CZ is roaming the planet like he’s bin Laden trying to stay one step ahead of Seal Team Six.
Assuming their activities are not outright banned, stablecoins seeking a presence in the U.S. market – whether overseen by the SEC, CFTC, or Girl Scouts of America – will have to submit to a much stricter AML, know your customer (KYC) and your capital. standards of requirements with which they (or many of their clients) currently agree.
One day late, stablebuck shorts
This is a view shared by Avanti Financial Group CEO Caitlin Long, whose company is one of three companies (to date) to have achieved Special Purpose Depository Institution (SPDI) status. ) in Wyoming. Long was the guest last month on Stephan Livera’s podcast where the couple discussed, among other things, the stablecoin issue.
Long cited the incredible market capitalization growth Tether has experienced this year, as well as Circle’s projection that the USDC cap will hit nearly $ 200 billion by 2023, as signaling “a point at which [stablecoins] getting too big ”and virtually forcing the Fed to step in rather than wait for things to explode.
Long proposed two possible routes that stablecoin issuers will be forced to take to maintain their operations in the United States: obtain a bank charter or register as a money market fund. Companies that find either option too far away will find themselves with even greater regulatory goals than those currently painted on their backs.
Long believes that the main effect of this change is that “the regulated side of the market that has access to US dollars will diverge from the unregulated side of the market that does not.” Firms that already hold large “Eurodollar” cash reserves will undoubtedly continue to fuel the fragmented shadow banking sector. At least for a while.
While some stablecoin companies may feel like they’ve successfully dodged U.S. enforcement action to date, Long noted that some federal agencies’ statutes of limitations provide a lot of time to build a case. So, just because an action has not yet been made public does not mean that it is not in progress.
As this week’s UN climate change report amply demonstrated, the misguided actions of the past have triggered a calculation that cannot be avoided, even if the parties involved agree to change their bad habits. Revenge (and / or justice) is a dish best eaten cold, and non-compliant businesses are about to find the stable currency winter is approaching.
Watch: CoinGeek Zurich Panel, Blockchain Law & Policy
New to Bitcoin? Discover CoinGeek Bitcoin for beginners section, the ultimate resource guide to learning more about Bitcoin – as originally envisioned by Satoshi Nakamoto – and blockchain.