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The stock market recovery from last year’s COVID crash is testament to the unprecedented level of federal stimulus injected into the economy over the past twelve months, but few asset classes have benefited more from a rebound in financial markets than cryptocurrencies.
Bitcoin BTCUSD,
has increased by 548% in the last twelve months, while Ethereum ETHUSD,
the second most valuable cryptocurrency, has gained around 690% during this period, according to FactSet, compared to a 71% rise for the S&P 500. But the fate of this rally could largely depend on President Joe Biden and the regulatory stance of his administration towards the booming crypto economy, experts tell MarketWatch. Here are the five biggest regulatory questions the Biden administration will face in the months and years to come that will have a huge impact on cyrpto investors:
Who will be the controller of the currency?
The agency responsible for chartering and supervising national banks is usually one of the more obscure federal financial regulators. But OCC has caught the attention of the crypto community by championing the integration between the crypto-economy and the legacy financial system under the brief leadership of former acting currency controller Brian Brooks, said Jackson Mueller, chief financial officer. policy and government relations to crypto Securrency consulting.
Read more: Fed’s Powell Says Bitcoin Is More A Substitute For Gold Than The Dollar
During his eight months as Interim Controller, Brooks issued several guidance letters affirming the ability of nationally chartered banks to serve as custodians of crypto assets and use a type of cryptocurrency called stablecoin to make transactions. payments, among others. “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 these directives?”
Stablecoins are a type of cryptocurrency that associates its value with another asset. The most popular is Tether, pegged to the US dollar. The crypto community is fond of these instruments because they facilitate transactions between highly volatile digital currencies – some analysts say the Bitcoin rally 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 single companies and backed by assets held by traditional banks. Brooks’ advice serves to give federally chartered banks the green light to be the custodian of stablecoins and use them for their own payments.
The crypto community was excited by reports that Biden would appoint Michael Barr, who served in the Treasury Department under the Obama administration, as comptroller. Barr had ties to several fintech firms and served on the advisory board of Ripple, issuer of the eponymous cryptocurrency XRPUSD,
But Barr is said to be out of contention for the post after progressives in the administration protested.
Law professor Mehrsa Baradaran, an expert on the racial wealth gap, has become the favorite to win the role, and crypto investors are less enthusiastic about the choice, given the skepticism she has shown to the ‘regard to cryptocurrencies in the past.
“While I share many of the cryptocurrency industry’s concerns about failures in the banking industry, I don’t think cryptocurrency is the best solution to financial inclusion and equity issues in the marketplace. banking sector, ”Baradaran told the Senate Banking Committee in 2019, arguing instead, Congress should task the Federal Reserve with building a digital payments infrastructure accessible to all Americans.
Read more: Why the coming recession could force the Federal Reserve to swap greenbacks for digital dollars
Are cryptocurrencies a threat to financial stability?
The OCC will not be the only financial regulator concerned with the use of stable coins, given the growing number of observers who claim that these instruments have enabled the growth of a new “shadow” banking system that threatens the stability of the economy. American financial system.
Michigan Democratic Representative Rashida Tlaib recently proposed a bill that would require stablecoin issuers to obtain a bank charter and obtain insurance from the Federal Deposit Insurance Corporation or hold reserves at the Federal Reserve “to ensure that all stable coins can be easily converted to US dollars. , on demand.”
Rohan Gray, chairman of the Modern Money Network, which helped develop the bill, compared stablecoins to money market mutual funds, which were under great stress during the 2008 financial crisis.
“We were looking at the history of shadow banking and examples where entities … claimed to have invented an instrument that worked and spoke like money, which could be used like money, could be considered roughly as secure and stable as silver in most cases. circumstances, ”Gray told The Block in December. “But in times of crisis, these claims turned out to be hollow, they became a massive source of systemic risk and they would inevitably be bailed out in the name of consumer protection. This had the effect of privatizing the gains in order to socialize the losses. ”
This question of financial stability means that other regulators, including the Federal Reserve and the Treasury Department, may consider regulating stablecoins in the coming years.
How will the government curb crypto money laundering?
The most immediate regulatory problem that crypto investors will face is an impending decision by the Financial Crimes Enforcement Network – a unit of the Treasury Department responsible for combating money laundering and other financial crimes – on the news. requirements for banks and other intermediaries to keep records and verify customer identities for certain crypto transactions.
Jerry Brito, of the Coin Center think tank, says that in the final days of the Trump administration, the Treasury attempted to speed up new rules that were “poorly regarded.” New requirements would have allowed the government to know the owners of private crypto wallets and therefore their entire transaction history, even if that person had done nothing suspicious.
“Since the Biden administration came in, they’ve been more respectful of FinCen, who I think never really wanted this as much as [former Treasury Secretary] Steve Mnuchin did it, ”he said, adding that law enforcement was wary of rules that would encourage criminals to refrain from dealing with US-based exchanges that are known to cooperate. with criminal investigations. “The Biden administration will take a more streamlined approach going forward,” said Brito, who is the executive director of Coin Center.
What will happen with the Ripple trial?
Gary Gensler, who is expected to be confirmed as chairman of the Securities and Exchange Commission, will have to deal with a host of crypto-related issues – not the least of which is a December lawsuit 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 stated that they don’t believe Bitcoin or Ethereum are securities that must be registered, the lawsuit says the SEC views Ripple differently.
“I was surprised that the complaint was not filed a long time ago because Ripple is very different from Bitcoin or Ethereum,” said Angela Walch, professor of law and cryptocurrency expert at the St Mary’s School of Law, at MarketWatch. “It’s not really a decentralized currency, because one company basically manages it.”
If the SEC wins, it will go a long way in defining what types of digital assets will be considered currencies and which will be considered securities, Walch added.
Will the SEC approve Bitcoin ETFs?
Crypto enthusiasts applauded Gensler’s appointment as head of the SEC, given his history of teaching blockchain and digital currencies at MIT’s Sloan School of Management. Coin Center’s Brito has argued that his assumption of the post of president would be good news for the many financial services companies trying to sell Bitcoin exchange-traded funds.
Several large financial services firms 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 problem as investors have to set up digital wallets or transfer money to a crypto exchange. These ETFs, however, could be bought and sold just like traditional stocks.
“Gary Gensler is someone who loves orderly markets,” Brito said. “What better way to allow investors to participate in this asset class in an orderly fashion than to have a well-regulated ETF.”
Now read: A coming Bitcoin winter? Crypto expert predicts exactly that, but after digital asset hits $ 300,000 in late 2021
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