Crypto Craze Has Washington Scrambling To Catch Up

With chatter about cryptocurrencies popping up everywhere from Super Bowl commercials to trucker protests, the Biden administration is this week expected to call for a government-wide study on how to regulate fast-growing digital currencies such as Bitcoin.President Biden’s executive order would require a number of agencies — among them, the Treasury, State, Homeland Security, and Justice departments — to draft in-depth reports on the future of money that would then be used to develop a framework for regulating the markets.The order also would direct the White House’s Office of Science and Technology Policy to look at the possibility that America’s central bank, the Federal Reserve, could develop its own digital currency. According to the Atlantic Council, nine countries have already launched so-called Central Bank Digital Currencies.The timing of the expected executive order was first reported by Yahoo Finance.In a speech last week to a monetary policy forum in New York, the Federal Reserve vice chairwoman, Lael Brainard, said new technology related to financial transactions is moving too quickly for the central bank to remain on the sidelines.“The financial system is not standing still, and neither can we,” Ms. Brainard said. “The digital financial ecosystem is evolving rapidly and becoming increasingly connected with the traditional financial system.”Ms. Brainard noted that the prominence of crypto advertisements during the Super Bowl broadcast earlier this month highlighted the growing interest of retail investors in the ecosystem. She said the market capitalization of digital currencies has grown to a high of almost $3 trillion in November 2021 from less than $100 billion five years ago.Players in the crypto space have been generally supportive of Washington’s efforts to clarify the regulatory landscape as it applies to their industry. In a letter to Treasury Department officials February 14, the Digital Chamber of Commerce welcomed the effort to modernize and streamline existing regulations.“For too long, outdated and unduly onerous regulations have hindered innovation and growth in digital asset and blockchain technology markets, and inconsistency across jurisdictions has made compliance with requirements challenging and, in some cases, impossible,” the letter stated.After standing by idly for years as the cryptocurrency craze spread, officials in Washington are now racing to catch up and create regulations that would protect investors and holders of digital currencies and thwart fraudsters in the space. The decentralized finance platforms that act as quasi-banks in the crypto space have begun dabbling in lending, trading, and holding digital assets — many of them without the sort of regulatory guardrails that protect consumers and investors in their dealings with traditional banks and other financial institutions.“If the past year is any guide, the crypto financial system is likely to continue to grow and evolve in ways that increase interconnectedness with the traditional financial system,” Ms. Brainard said. “As a result, officials in many countries are undertaking efforts to understand and adapt to the transformation of the financial system.”The executive order is also expected to task the Financial Stability Oversight Council, formed following the 2008 financial crisis, with studying the potential impact of cryptocurrencies on the overall financial system, and to direct the agencies to look closely at one of the fastest-growing segments of the industry, the rise of stablecoins.Stablecoins are digital assets that maintain their value relative to the dollar — unlike flashier cousins like Bitcoin, which have fluctuated wildly in value. Stablecoin supply grew nearly sixfold in 2021, Ms. Brainard said, to $165 billion in January 2022 from roughly $29 billion in January 2021, and is concentrated among a handful of coins, such as Tether and True USD, that, again, are virtually unregulated or regulated only by a patchwork of state rules.Last week, the FBI announced it was creating a national cryptocurrency enforcement team to go after bad actors who use the anonymity afforded by cryptocurrencies to profit from cyber attacks and other online shenanigans.“We are issuing a clear warning to criminals who use cryptocurrency to fuel their schemes,” Deputy Attorney General Lisa Monaco said when announcing the move at the Munich Cyber Security Conference in Germany last week.“We also call on all companies dealing with cryptocurrency — we need you to root out cryptocurrency abuses. To those who do not, we will hold you accountable where we can.”

Crypto Craze Has Washington Scrambling To Catch Up

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