Anyone expecting blueprints for cryptocurrency regulation legislation from the three reports released by the Treasury Department on Friday (September 16) will be sorely disappointed.
The reports, prepared in accordance with President Biden’s March 10 executive order on cryptocurrencies and digital assets, while extensive, do not contain many specific recommendations or policy decisions other than those focusing on illicit funding.
See also: Biden’s Executive Order Set to Fast-Track Crypto Policy
The others, Crypto-Assets: Implications for Consumers, Investors, and Businesses and The Future of Money and Payments, are more reviews and general statements of intent.
What the reports lack is the urgency of the need to provide a specific set of rules and regulations for the cryptocurrency industry, including stablecoins and central bank digital currencies.
There is a reason for this, which is clearly spelled out in the crypto asset report: the Treasury Department does not see it as urgent because crypto has not yet really started to impact the broader financial markets and economy.
“Despite the recent increase in the number and type of crypto assets and activities, crypto asset products are primarily used to trade, lend and borrow other crypto assets,” it said. “Their use in conducting other activities is currently limited, and blockchain technology’s potential to transform financial service delivery, as advocated by developers and advocates, has yet to materialize.”
In a section looking at fraud, fraud, theft and market manipulation rampant in crypto, the Treasury Department said, “The potential benefits of financial incorporation of crypto assets have yet to materialize widely.”
Something similar can also be read from the perspective of the “Future of Money” report on stablecoins:
“While stablecoins are primarily used today to facilitate trading, lending, or borrowing of other digital assets, proponents believe that stablecoins could be widely adopted as a means of payment by households and businesses and some improvement in the efficiency of cross-border payments by enabling the number of intermediaries in a payment chain is reduced.”
In publishing the reports, Treasury Secretary Janet Yellen called innovation “one of the hallmarks of a dynamic financial system and economy”.
However, she added: “Innovating without adequately addressing the impact of these developments can result in significant disruption and damage to the financial system and individuals, particularly our more vulnerable populations.”
The purpose of the reports, the statement said, is “to clearly identify the true challenges and risks of digital assets used for financial services… [and] provide a strong foundation for policymakers as we work to realize the potential benefits of digital assets while mitigating and minimizing the risks.”
To some extent, the reports said there was no political need for an immediate bill, in part because Congress has already admitted nothing will be done this year, especially with what promises to be a highly contentious election to be, which is coming in less than six weeks.
Read more: Senate Crypto Bill Debuts and Crypto Industry Makes Big Gains
Still, the Treasury Department’s approach means Sen. Cynthia Lummis (R-Wyo.) and Sen. Cynthia Gillibrand (DN.Y.) will have much more time to sway the agenda, if for no other reason than that it has the only specific approach to questions like whether or not a cryptocurrency is a security – which has a major impact on its use in payments, as security tokens would require a capital gains tax on each transaction.
Despite a heightened sense of urgency around stablecoins after a run last spring that caused around $48 billion in investments to disappear, political differences have largely led Republicans and Democrats to agree that this will not happen before 2023 either.
Also Read: US Stablecoin Bill Hits a Catch as Negotiations Collapse
That’s not to say some laws aren’t coming, just that we haven’t really seen their form yet.
More of the same
The recommendations in the Crypto Assets report cover three broad areas: the need to take action against illicit activity; the need to further enforce existing regulations while developing new ones to fill gaps; and the need to make extensive efforts to educate consumers, investors and businesses on the safe use of digital assets.
The report calls for increased oversight of consumer protection agencies, regulators and law enforcement agencies, as well as improving and expanding inter-agency coordination of enforcement and information-sharing.
Another recommendation to ease the burden on crypto investors and developers is the call for more aggressive action by existing regulators to issue guidance and rules “as needed” and clarify existing regulatory requirements. It also calls for better “straightforward” advice.
While the crypto industry clamors loudest for clear regulation, it wants a unified new set of rules – rules that offer more room for innovation and, above all, take most cryptocurrencies out of the control of the Securities and Exchange Commission. For his part, SEC Chairman Gary Gensler has been very clear – everything but Bitcoin is a security – and the agency has aggressively enforced it.
A third and final recommendation is for the Financial Literacy and Education Commission (FLEC) to “ensure US consumers, investors and businesses have access to trustworthy information about crypto assets” to understand how the crypto industry and technology works its risks as an investment and in areas such as crypto investment risk and industry-specific fraud and theft.
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