Progressives in Washington are pushing for much stricter regulation of Bitcoin and other cryptocurrencies, and they're sure to find a warm welcome from the Democratic-controlled Congress and the Biden administration.
The Center for American Progress, a left-wing think tank, wants the Securities and Exchange Commission to oversee large sections of the financial industry using current statutes and procedures.
“The SEC can utilize its current powers to green the blockchain, safeguard investors, and prevent money laundering, tax evasion, and criminal conduct,” the Center wrote in an early October paper on digital assets.
In recent public comments, SEC Chairman Gary Gensler has come out swinging against cryptos and related stablecoins, referring to the industry as the “Wild West.” At the Massachusetts Institute of Technology, Gensler taught a course on “blockchain and money.” And he now appears to want to enhance the SEC's regulatory authority over the business.
“Whether it's a stock token, a stable value token backed by securities, or any other virtual product that provides a synthetic exposure to underlying securities, it doesn't matter.” These products are governed by securities regulations and must operate inside our securities framework, according to Gensler in August.
Democrats in Congress have also taken a hard line on cryptocurrency, advocating for increased supervision and tax reporting requirements, in part to garner income for their legislative agendas. Despite Republican resistance, the Senate enacted an infrastructure measure in August that contained new tax reporting requirements for crypto transactions.
Still, because cryptos like Bitcoin aren't issued or sold by a centralized institution, they may be difficult to regulate as securities.
Stablecoins, on the other hand, are currently under the spotlight in Washington. The tokens are expected to have a constant $1 value and be backed 1 to 1 by cash and other high-quality reserves. Regulators are concerned that a run on a stablecoin might destabilize broader capital markets because sponsors and issuers of the coins don't disclose much about the composition of their reserves.
According to recent reports in The Wall Street Journal and elsewhere, the Treasury Department and other federal authorities may be close to creating a regulatory framework for stablecoins that would subject their issuers to banking or money-market fund restrictions.
Meanwhile, the Federal Reserve is slated to release a key report on digital assets, outlining its thoughts on a future “digital dollar.” Although crypto regulation is unlikely to be included in the study, it may nevertheless bring digital currencies into the spotlight.
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