U.S. President Joe Biden walks from Marine One to the White House after a trip from Michigan, in Washington, U.S., September 14, 2022.
Tom Brenner | Reuters
The Biden White House has just released the first framework for what crypto regulation in the US will look like – including ways the financial services industry will evolve to make borderless transactions easier, and How to prevent fraud in digital assets space.
The new directives hit the muscles of existing regulators like the Securities and Exchange Commission and the Commodity Futures Trading Commission, but none have yet mandated anything. However, the long-awaited decree from Washington has caught the attention of both the crypto industry as a whole – and of investors in this nascent asset class.
The framework follows a executive order issued in Marchin which President Biden called on federal agencies to examine the risks and benefits of cryptocurrencies and issue a formal report on their findings.
For six months, government agencies have worked to develop their own frameworks and policy recommendations to address half a dozen priorities listed in the executive order: consumer and home protection invest; promote financial stability; combat illicit financing; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. Together, these recommendations include the first “whole government approach” to regulating the industry.
Brian Deese, Director of the National Economic Council and National Security Adviser Jake Sullivan said in a statement that the new guidelines aim to position the country as a leader in asset ecosystem governance. digital at home and abroad.
Here are some key takeaways from the new White House crypto framework.
Fight illegal finance
Part of the White House’s new framework for crypto regulation focuses on eliminating illegal activity in the industry – and the proposed measures appear to have real teeth.
“The President will evaluate whether to call on Congress to amend the Bank Secrecy Act, anti-tipping statutes, and anti-money laundering laws to explicitly apply to financial service providers.” digital assets – including digital asset exchanges and non-fungible token (NFT) platforms,” according to a White House fact sheet.
The president is also considering whether to push Congress to raise penalties for unlicensed money transfers, as well as potentially amend several federal laws to allow the Justice Department to prosecute criminals. digital assets in any jurisdiction where victims of such crimes are found.
Regarding next steps, “Treasury will complete an illicit financial risk assessment on decentralized finance by the end of February 2023 and a review of non-fungible tokens by July 2023. ,” read the fact sheet.
Crime is rampant in the digital asset sector. More than $1 billion in cryptocurrencies have been lost to fraud since early 2021, According to research from the Federal Trade Commission.
Last month, the SEC said it had charged 11 people for their role in creating and promoting a fraudulent crypto pyramid and Ponzi scheme that raised more than $300 million from millions of investors. retailers worldwide, including in the United States. Meanwhile, in February, US officials $3.6 billion worth of bitcoins seized — their largest ever crypto seizure — related to the 2016 hack of crypto exchange Bitfinex.
A New Digital Dollar
The framework also points to the potential to derive “significant benefits” from the US central bank digital currency, or CBDC, which you can think of as a digital form of the US dollar.
Currently, there are several different types of digital US dollars.
Housed in commercial bank accounts across the country are electronic US dollars, backed in part by reserves, under a system known as fractional reserve banking. As the name implies, a bank holds within itself a small reserve of its deposit liabilities. The transfer of this form of money from one bank to another or from one country to another operates on legacy financial paths.
There is also a range of USD-pegged stablecoins, including Tether and USD Coin. Although critics have question whether tether has enough dollar reserves to support its currency, it still biggest stablecoin on the planet. USD Coin Supported fully reserved assets, redeemable on a 1:1 basis for US dollars and operated by Center, a consortium of regulated financial institutions. It’s also relatively easy to use no matter where you are.
Then there is the hypothetical digital dollar that will be taken over by the Federal Reserve as a CBDC. This will be basically just a digital twin of the US dollar: Fully regulated, under central authority, with the full trust and backing of the central bank. of the country.
“A dollar in the form of CBDC is a central bank debt. The Federal Reserve has to pay you back,” explains Ronit Ghose, head of fintech and digital assets for Citi Global Insights.
Federal Reserve Chairman Jerome Powell previously said The main impetus for the US to launch its own central bank digital currency, or CBDC, will be to eliminate the use case for cryptocurrencies in the US.
“You wouldn’t need stablecoins; you wouldn’t need crypto, if you had American digital currency,” Powell said. “I think that’s one of the stronger arguments in favor of it.”
In the new framework of the White House, it points to the fact that the US CBDC can enable a “more efficient” payment system, laying the foundation for further technological innovation, facilitating transactions. transboundary services faster and environmentally sustainable.”
“It can promote financial inclusion and equity by facilitating access to a wide range of consumers,” the report continued.
As such, the administration urges the Fed to continue the ongoing CBDC research, testing and evaluation.
Protect financial stability
U.S. central banks and lawmakers have for years warned of the rise of stablecoins, a specific subset of cryptocurrencies whose value is pegged to real-world assets, such as fiat money like US dollars or a commodity like gold.
These non-governmental digital tokens are being used more and more in domestic and international transactions, which is scary for central banks because they have no say in how to regulate save this space.
In May, the demise of TerraUSD, one of the most popular US dollar-pegged stablecoin projects, cost investors tens of billions of dollars as they pulled out in a panic that some have compared to a bank run. Buy widely – and Public PSA – from reputable financial institutions that gave credit to the project, further fueling rumors that the whole thing was legit.
According to the White House, the collapse of the stablecoin project led to a series of defaults, wiping out nearly $600 billion in assets.
“Digital assets and the mainstream financial system are becoming increasingly intertwined, creating channels for chaos that have spillover effects,” according to the White House fact sheet.
The framework further segregates stablecoins, warning that they can create disruptive runs if not combined with proper regulation.
To make stablecoins “safer,” the administration said the Treasury will “work with financial institutions to strengthen their capacity to identify and mitigate network vulnerabilities by sharing information.” and leverages a wide range of data sets and analytical tools, and collaborates with other agencies to “identify, monitor and analyze emerging strategic risks relevant to the digital asset markets digital.”
Those efforts will also be carried out in conjunction with international allies, including the Organization for Economic Cooperation and Development and the Financial Stability Board.
