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US crypto-regulation bill
24 January 2022     665

US crypto-regulation bill

AP The Biden administration is reportedly appealing to Congress to introduce a bill that would strengthen state regulation of "stablecoins".

Stablecoin is a type of cryptocurrency that attaches directly to 1: 1 on any other asset (eg US dollar). Or 1 stablecoin = 1 USD for example. This is made possible by equalizing reserves and circulating money.


The Bill

In a 22-page report (released in early November), the Ministry of Finance and several other regulators state that the bill will make stablecoin issuers de jure banks; Which naturally provides a list of laws and rules under which this system will fall.

For example, to alleviate the liquidity problem, banks are required to have a certain amount of cash reserves. Additional restrictions will also be introduced to reduce the chances of money laundering and similar illegal activities to a relatively low level.


The new bill addresses the difficulties that are becoming more and more apparent with the popularization of cryptocurrency


Janet Yellen, an American economist, former head of the US Federal Reserve (FED) and current Secretary of the Treasury, says the lack of proper oversight puts both users and the system as a whole at serious risk. Crypto-currency, in his view, is inconsistently, fragmentarily supervised, and some stablecoin is beyond the general regulatory perimeter.

This report has long been awaited by both Congress and much of the US population. It was set up by an inter-agency committee known as the Presidents Working Group on Financial Markets (led by the Ministry of Finance). It also includes the Fed, the SEC and the CFTC.

According to the report, the agency believes that the legislation should immediately address the risks associated with payments with stablecoin.


Crypto & Stability

Before we hear the answer from Congress, Crypto has experienced both a small boom and a crisis (as a result of the upgrade). Which is not much surprising given its nature. At the same time, the Financial Stability Supervisory Board (FSOC), a larger team responsible for identifying financial system risks, may be able to help investors by taking various security steps as well as controlling the reserves of stablecoin issues.

Howell Jackson, a financial regulation expert from Harvard Law School, said this is forcing them to join the regulated perimeter; Which most people think is a good decision.


The new bill addresses the difficulties that are becoming more and more apparent with the popularization of cryptocurrency


Some regulators have already taken a strong position. For example, SEC Chairman Gary Gensler, who said that stablecoin can be used to launder money, evade taxes, and evade US financial sanctions.

Stablecoins are a type of cryptocurrency that has a certain value attached (dollar, gold, euro, etc.). This makes them more favorable for financial transactions, given that there is no problem with fluctuating indicators that all other currencies (including Bitcoin) have. Many Bitcoin owners already think it is a future investment (most likely because of Meta) and do not intend to spend it because of the potential price increase. However, after the release of the update, a small wave of sales was observed.

There are more than 200 stablecoin valued at about $ 130 billion, which is six times more than last year. They are mainly used to exchange cryptocurrencies and then buy other digital assets (e.g. Bitcoin). Many transactions like this have no connection to a bank that would allow individuals to use the cache.

The report, however, highlighted the possibility that these coins could be used to buy goods or send money abroad (e.g., by immigrants). Which bypasses the costs associated with such exchanges.


The new bill addresses the difficulties that are becoming more and more apparent with the popularization of cryptocurrency


The stablecoin boom quickly caught the attention of regulators and made them think about the specific bills and policies they would choose to address these issues. The big banks have made a similar demand because they believe stablecoins enjoy unfair exceptions. Some issuers of stablecoin also expressed their opinion and said that regulations are needed to keep this industry from falling into chaos.


Potential risks

The main danger with this type of coin is that they will most likely not be stable at all. If the customer needed a large enough amount of money they could create a "run on bank" problem. That is, they make so much money that the bank / currency can no longer function or fall into crisis. Stablecoin issuers even say they hold a dollar reserve for each coin to facilitate redemption.

Some issuers claim that they store dollars in cash and short-term treasury bills that are easy to convert into cash. However, according to reports, some hold more risky assets in the cache (eg, short-term business loans or securities, corporate or municipal bonds, or other cryptocurrencies altogether)
If these assets sink - as in the case of securities in 2008 and 2020 (in particular securities secured by a mortgage) - then it will be impossible for stablecoin to maintain a 1: 1 ratio; Which may cause panic among investors.


The new bill addresses the difficulties that are becoming more and more apparent with the popularization of cryptocurrency


Tether, the largest issuer of stabelcoin, has been fined by New York state officials and the CFTC for cheating that all their tokens relied on dollars and other fiat currencies. This naturally was not true.

There is a wide network of regulations that govern banks, securities, investment bonds / bonds to protect the consumer and avoid market crises. Chief executives of the Ministry of Finance say stablecoin operated beyond this network.

FED Chairman Jerome Powell, before Congress, said that if we are dealing with a similar system then it is better for the state to have appropriate regulations. Which, as yet, does not exist.


Reaction

Some progressive organizations oppose the new bill because it was initially thought that it would lead to lobbying by wealthy individuals. Which happened even more.

The cryptocurrency world has felt significant pressure; It is obvious that he can not stay beyond the regulations.
Circle stablecoin, one of the companies issuing USD coins (with a turnover of $ 33 billion), says it is already taking the first steps to become a bank. This is confirmed by its CEO.

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