The recovery of the stock market since last year’s COVID-led crash is proof of the unprecedented level of federal stimulus pumped into the economy over the past 12 months, but few asset classes have benefited from a return to financial markets more than cryptocurrencies.
Bitcoin BTCUSD,
has increased by 548% in the last twelve months, while Ethereum ETHUSD,
the second most valuable cryptocurrency, gained about 690% during this 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 the regulatory position of the S&P 500. its administration is growing the cryptocurrency economy, MarketWatch experts say. Here are the top five regulatory questions the Biden administration will face in the coming months and years, which will have a significant impact on crypto investors:
Who will be the currency controller?
The agency responsible for chartering and overseeing national banks is usually one of the more obscure federal financial regulators. But the OCC has attracted the attention of the crypto community by promoting its integration between the crypto economy and the financial system inherited under the brief leadership of former interim currency controller Brian Brooks, said Jackson Mueller, director of policy and government relations at Securrency Cryptographic Consulting.
Read more: Fed’s Powell says bitcoin is more of a substitute for gold than the dollar
During his eight months as Comptroller, Brooks issued several letters of guidance stating the ability of nationally approved banks to serve as custodians of cryptocurrencies and to use a type of cryptocurrency called stablecoin to conduct payments, among other issues. “The big problem is what happens to the guidance issued by Brooks and his team when someone else comes,” Mueller told MarketWatch. “Am I going in a completely opposite direction and canceling that direction?”
Stablecoins are a type of cryptocurrency that binds its value to another asset. The most popular is Tether, linked to the US dollar. The cryptocurrency community is passionate about these tools because they facilitate transactions between highly volatile digital currencies – some analysts claim that the Bitcoin rally was activated by the aggressive issuance of new Tether tokens.
Unlike currencies such as Bitcoin and Ether, however, stable currencies are often not decentralized, but are managed by single companies and backed by assets held by traditional banks. Brooks’ guide serves to give federally authorized banks the consent to become custodians of stable currencies and use them for their own payments.
The cryptographic community has been delighted with reports that Biden will appoint Michael Barr, who worked at the Treasury Department during the Obama administration as controller. Barr has had connections with several fintech companies and was a member of an advisory board at Ripple, the issuer of the XRPUSD cryptocurrency,
But it seems that Barr is no longer in contention for this position after the progressives in the administration protested.
Law professor Mehrsa Baradaran, an expert on the racial wealth gap, has emerged as a favorite at the chance to win the role, and crypto investors are less excited about the choice, given his skepticism about cryptocurrencies in the past.
“Although I share many of the concerns of the cryptocurrency industry about failures in the banking industry, I do not believe that cryptocurrency is the best solution to the problems of financial inclusion and equity in the banking sector,” Baradaran told the Senate Banking Committee in 2019, arguing in Instead, Congress should entrust the Federal Reserve with creating a digital payment infrastructure available to all Americans.
Read more: Why the future recession could force the Federal Reserve to exchange green dollars for digital dollars
Cryptocurrencies are a threat to financial stability?
The OCC will not be the only financial regulator concerned with the use of stables, given the growing number of observers who argue that these instruments have allowed the development of a new “shadow” banking system that threatens the stability of the US financial system.
Rep. Democrat Rashida Tlaib of Michigan recently proposed a bill that would require stablecoins issuers to obtain a bank charter and obtain insurance from the Federal Deposit Insurance Corporation or keep reserves with the Federal Reserve “to ensure that all stablecoins can be easily converted to US dollars upon request. ”
Rohan Gray, chairman of the modern money network that helped draft the bill, compared stable currencies to mutual funds in the money market, which were under great stress during the 2008 financial crisis.
“We were looking at the history of hidden banking and the examples where entities … would claim to have invented a tool that went and spoke like money, that could be used as money, could be considered as safe and stable as money. circumstances, “Gray told The Block in December. “But in times of crisis, those claims have proved to be empty, have become a massive source of systemic risk and will inevitably be saved in the name of consumer protection. The effect was the privatization of profits to socialize losses. ”
This issue of financial stability means that other regulators, including the Federal Reserve and the Treasury Department, could seek to regulate stables in the coming years.
How will the government reduce money laundering encryption?
The most immediate regulatory issue facing crypto investors is an imminent decision by the Financial Crimes Enforcement Network – a unit of the Treasury Department to combat money laundering and other financial crimes – on the new requirements for banks. and other intermediaries to keep track of and verify customer identities for certain cryptographic transactions.
Jerry Brito, of the Coin Center think tank, says that in the declining days of the Trump administration, the Treasury tried to quickly follow the new rules that “were not taken into account.” The new requirements would have allowed the government to teach the owners of private cryptographic wallets and therefore their entire transaction history, even if that person had done nothing suspicious.
“Since the Biden administration came in, they have been more deferential to FinCen, which I don’t think has ever wanted this as much as [former Treasury Secretary] Steve Mnuchin did it, ”he said, adding that law enforcement is cautious, the rules would encourage criminals to refrain from US exchange transactions that are known to cooperate with criminal investigations. “The Biden administration will take a more rational approach in the future,” said Brito, who is the executive director of the Coin Center.
What will happen to the Ripple process?
Gary Gensler, who is expected to be confirmed as chairman of the Securities and Exchange Commission, will have many crypto issues to resolve – not least a lawsuit filed in December against the Ripple by the SEC.
In its lawsuit, the SEC accused Ripple and its directors, 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 do not believe Bitcoin or Ethereum are securities to be registered, the lawsuit indicates that the SEC considers Ripple different.
“I was surprised that the process was not filed long ago because Ripple is very different from Bitcoin or Ethereum,” Angela Walch, a law professor and cryptocurrency expert at St. Louis, told MarketWatch. Mary’s School of Law. “It’s not really a decentralized currency, because you only had one company that essentially manages it.”
If the SEC is successful in its process, it will help define the types of digital assets that will be viewed as currencies and that will be viewed as securities, Walch added.
The SEC will approve bitcoin ETFs?
Crypto enthusiasts cheered on Gensler’s nomination to lead the SEC, given his history of teaching blockchain and digital currencies at MIT’s Sloan School of Management. Brito of the Coin Center claimed that his accession to the role of president will be good news for the many financial services companies that are trying to sell funds traded on the stock exchange.
Several major financial services firms have applied to offer bitcoin ETFs, including Wisdom Tree, Morgan Stanley MS,
and VanEck. Theoretically, investors might prefer bitcoin ETFs because buying real bitcoin can be a hassle, because investors have to set up digital wallets or move money on an encryption exchange. However, these ETFs could be bought and sold in the same way as traditional stocks.
“Gary Gensler is someone who likes tidy markets,” Brito said. “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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