Crypto wars: the Biden administration at war with itself over regulation

A family feud is brewing over the regulation of the $ 2 trillion crypto business.

FOX Business has learned that two, and possibly as many as three agencies within the Biden administration disagree with each other on who will take the lead in cryptocurrency regulation and the broader coin trade. digital. To complicate matters, Senator Elizabeth Warren, D-Mass., Could tip the scales in favor of one of them, according to people with direct knowledge of the matter.

Members of the Commodity Futures Trading Commission – widely viewed by securities lawyers as having the most legal authority to regulate crypto – say Warren has quietly supported the efforts of Securities and Exchange Commission chairman Gary Gensler, to become an uber-regulator of digital currencies.

These people, who spoke on condition of anonymity, said Warren appears to support the development of new legislation that would give the SEC increased powers to regulate crypto. Warren, a leading member of the Senate Banking Committee, and Gensler, a former Wall Street executive, academic and securities regulator in the Obama administration, are longtime associates who share many of the same approaches to mastering what ‘they believe to be abuses in the Financial Markets.

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Warren recently called for a crackdown on alleged abuse in the crypto industry, and Gensler announced that the SEC would play a key role in that effort – sparking a turf war within the Biden administration with the CFTC.

Another regulator, the Consumer Financial Protection Bureau, is also questioning whether it should regulate the crypto industry, FOX Business has learned.

The SEC, CFTC and a spokesperson for Warren did not immediately comment. A CFPB spokeswoman declined to comment, but confirmed that the agency has received complaints about crypto fraud that it takes “seriously”.

Over the past eight months, the office has been inundated with thousands of consumer complaints alleging crypto-related scams and frauds, prompting officials to discuss joining the regulatory fray, according to people with knowledge of the matter.

The discord comes as the Biden administration has started pushing for increased oversight of digital currency and its decentralized framework used to conduct business transactions, known as the blockchain. Advances in the use of blockchain technology and the growing acceptance of digital coins like bitcoin to buy everything from cars to movie tickets have brought crypto into the mainstream in recent years. Digital currencies are also used by cybercriminals for ransom payments, including Colonial Pipeline, which paid hackers millions of dollars to unleash America’s largest pipeline slowed down by bad actors.

That’s why senior government officials, including Treasury Secretary Janet Yellen, have publicly expressed concern that crypto is too often used to fund criminal activities such as money laundering and fraud because it is largely unregulated.

“They may need to create a new category for this over time,” said Thomas Hayes, chairman of Great Hill Capital. “At the moment, it doesn’t fit perfectly into any category, but I think the CFTC has the most compelling point right now.”

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Cryptocurrencies have long been a regulatory conundrum because no one is quite sure whether they are considered a separate security, commodity, or currency. Traders say digital coins embody a bit of both, making it difficult to determine who has more jurisdiction over them.

According to case law, the SEC can only regulate assets that qualify as security, such as a stock or bond that represents ownership of a business or an interest in a business’s cash flow. This means that only certain crypto tokens fall under its purview without further congressional grants.

The CFTC may have more power to broadly regulate crypto, securities lawyers say, as it is the official regulator of the commodities and derivatives market, a category crypto may fall better into. .

As for the CFPB, created in the aftermath of the 2009 financial crisis, it has a much broader mission: to protect consumers against unfair treatment. This ill-defined mandate could, in theory, also make it a regulator if consumers are subject to fraud and scams, according to legal experts.

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The CFPB was designed by Warren, a longtime bank critic and advocate for tighter financial regulation. In June, Warren wrote to Gensler demanding better crypto regulation, and Gensler responded on Wednesday by agreeing that investors are not adequately protected in the cryptocurrency markets. He said the SEC needed more regulatory authority to effectively crack down on digital coin abuse.

His letter echoed remarks he made last Monday in a speech at the Aspen Institute, where Gensler compared the crypto industry to the “Wild West” with widespread fraud, and which the SEC would both investigate. scams and would ask Congress for additional powers to expand its mandate to do so.

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Gensler’s speech and Warren’s letter as public comments were viewed as power grabbers by CFTC officials, where senior officials claim their agency, not the SEC, has statutory authority to run the cryptography regulations. Commissioner Brian Quintenz responded to Gensler’s speech by tweeting: “To be clear here, the SEC has no authority over pure commodities or their trading venues, whether those commodities are wheat, gold or crypto assets. ”

Also intervening, former CFTC Chairman Chris Giancarlo tweeted: “Only one US regulator has experience regulating markets for #Bitcoin & Crypto and it is not @SECGov.”

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As the Biden administration clears up the crypto-regulation mess, industry groups have been preparing for additional regulations for months, as FOX Business reported. Some say they welcome further regulation as it would standardize the industry. But other crypto supporters fear that the excess of additional regulation could stifle crypto innovation.

SEC Commissioner Hester Peirce, also known as a “crypto mom,” told FOX Business that she fears new crypto technologies and innovations will occur overseas to evade any potential US regulation. . “We are already seeing people in space avoiding the United States because they don’t know the rules,” she said.