Treasury Department to Warn White House Cryptocurrency Needs Regulation – The Washington Post | Jewelry Dukan

The Treasury Department will warn the White House that unless the government introduces major new regulations, cryptocurrencies could pose significant financial risks that outweigh their benefits, according to two people familiar with the matter.

Through four separate reports this month, the Treasury Department is expected to make clear that top economic officials in the Biden administration believe crypto needs tight oversight as lawmakers weigh new rules for the digital assets.

The Treasury Department reports will highlight the economic danger of cryptocurrencies in several key areas, including the fraud risks they pose to investors, the two people familiar with the matter said, speaking on condition of anonymity to discuss the reports before they are released will. The Treasury Department’s assessments conclude that cryptocurrencies do not yet pose a stability risk to the broader financial system – but that the situation could change quickly.

One of the reports will specifically focus on the financial dangers posed by stablecoins, a form of cryptocurrency theoretically pegged to the value of the US dollar, the people said. The Treasury Department asked Congress last fall to give banking regulators new powers to oversee these digital tokens, but lawmakers have yet to agree on how to do so. Meanwhile, this spring’s collapse of a $60 billion stablecoin project called Terra helped accelerate a broader crypto market downturn that is ongoing.

Lawmakers are considering forcing the government to write federal rules for the industry as crypto interests poured money into a lobbying campaign to frame the debate. The sector is pushing to establish the Commodity Futures Trading Commission as its primary regulator, believing it to be friendlier than the Securities and Exchange Commission. So far, the industry appears to be winning: Three bipartisan bills introduced this year all codify a leadership role for the CFTC.

It wasn’t immediately clear how the Treasury Department would weigh this issue — or others dividing crypto interests and consumer and investor advocates. A Treasury Department spokesman declined to comment.

“The Treasury Department is trying to lay the analytical foundation for very tight oversight of this financial sector,” said one of those familiar with the matter. “They also hope that with these types of reports, it will become difficult to enact regulations that prevent strict oversight of the industry. This framework would serve as a benchmark to say, “We should focus on these risks and not get carried away by the promises of the technology and the industry.”

The reports respond to an executive order President Biden signed into law in March for a comprehensive review of the federal government’s approach to digital assets, from their environmental impact to their potential to promote financial inclusion. At the time, industry leaders said they were encouraged by the development, and framed it as recognition of the sector’s staying power by the most powerful voice in Washington.

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Still, Treasury Secretary Janet L. Yellen has been a frequent skeptic about crypto, although she took pains to emphasize that it could lead to significant new innovations. your department recently drew complaints from the industry under the First Amendment when it imposed sanctions on a crypto-anonymization program called Tornado Cash, a tool of choice for North Korean hackers. Treasury officials’ push for new requirements also complicated efforts by the bipartisan House of Representatives to enact a new regulatory regime for stablecoins, according to a CoinDesk report earlier this month.

Mark Hays, who specializes in crypto issues for Americans for Financial Reform, a left-leaning group, said Treasury Department officials have been meeting with a number of groups, including his, about the upcoming reports. Hays cited Federal Trade Commission data showing that $1 out of $4 reported lost through fraud was paid in cryptocurrency. Consumers have reported losses of more than $1 billion to crypto from January 2021 to March 2022, Hays said, citing FTC data.

“Most of the time we see a predator model, similar to what we saw leading up to the 2008 financial crisis,” Hays said. “We hope the report finds a way to communicate the extent and seriousness of this potential harm.”

Dave Grimaldi, head of government affairs for the Blockchain Association, an industry lobby group, commended the administration for ordering the review. “Searching the entire federal government to determine where lies jurisdiction over a new technology with major consumer impact [a] intelligent process,” he said. “The White House understands that the winds of change are blowing toward decentralized payment systems and away from traditional and institutional finance as we know it.”

Tyler Gellasch, president and CEO of the investor advocacy organization Healthy Markets, said he was skeptical that the report would propose a crackdown.

“Many crypto industry practices are simply illegal in the securities markets, so circumventing SEC rules is critical to the bottom line of the crypto industry,” he said. “If the report recommends giving the CFTC new powers for spot trading of digital assets, as many are anticipating, we don’t expect public celebrations, but there would still be a big sigh of relief from K Street to Silicon Valley to China. “

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