Crypto Hits The Big Time With White House Regulatory Move

// January was not a good month to be a cryptocurrency investor. The total value of the entire cryptocurrency market was approximately halved from its all-time high as a months-long slide continued across the asset class.

To be fair, it wasn’t just the cryptocurrency market that took a January beating. Equities were mostly down too. But the stock market is already highly regulated. The cryptocurrency market, on the other hand, is routinely referred to by Securities and Exchange Commission head Gary Gensler as the “wild west.”

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There is no shortage of financial industry luminaries speaking out about crypto in the wake of the January market rout. For instance, economist Paul Krugman, winner of the Nobel Prize, recently compared the volatile cryptocurrency market to the subprime mortgage crisis (which sparked the Great Recession more than a decade ago).

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Krugman was a bit circumspect about anything in the crypto markets having system-wide risks in the same manner as the subprime mortgage crisis. Still, he did proclaim that “cryptocurrencies, with their huge price fluctuations seemingly unrelated to fundamentals, are about as risky as an asset class can get.”

Price fluctuations aren’t the only risk of dealing in cryptocurrencies. Fraud, money laundering, and outright theft have plagued cryptocurrency marketplaces for years.

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The Federal Trade Commission just released new data showing an historic increase in online scams last year, and the agency is pinning the huge uptick on illicit cryptocurrency investment schemes pushed on social media. Meanwhile, cryptocurrency money laundering remains a perennial concern. On January 29, the world’s largest cryptocurrency exchange, Binance, restricted 281 personal accounts of Nigerian users in an attempt to comply with international money laundering laws.

The SEC has had cryptocurrency markets in its crosshairs for a long time — in fact, Gary Gensler came into office espousing crypto regulation reform. But now, in the wake of an especially brutal time for cryptocurrency investors, and in the midst of a bountiful time for crypto fraudsters, it looks like the SEC is gaining a powerful ally from higher up the food chain.

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Bloomberg News was the first to report that the Biden administration is about to release a government-wide cryptocurrency regulation strategy. This strategy will reportedly take the form of a National Security Council memorandum which could come out before the end of February. Under the NSC memorandum, federal agencies will be required to assess the risks and opportunities cryptocurrency poses within their areas of expertise. The impact of digital assets on financial stability will be analyzed in the memorandum, as will the potential for normalizing crypto regulations across international borders. Finally, the memorandum will also provide details about a possible central bank digital currency.

With cryptocurrency becoming increasingly mainstream, it certainly makes sense for federal agencies to weigh how the proliferation of crypto could affect their operations, for good or for ill. It also seems intuitive, particularly in light of recent market volatility, to take a look at stability as it relates to crypto. And, exploring collaboration with other countries in connection to assets that transcend boundary lines on a map is a no-brainer.

For the last part of that though, I guess you’ll have to talk to a bigger crypto-nerd than me. With 97 percent of the dollars in circulation today already consisting of nothing more than a string of digital code held by a commercial bank, and with one of the points of cryptocurrency in the first place being decentralization and non-reliance on any particular government, I’m not exactly sure what a central bank digital currency would give us that we don’t already have. I suppose I’ll just have to await the memorandum like everyone else.

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Although insiders in any industry rarely roll out the red carpet for new regulations, the coming renewed focus on cryptocurrency from the Biden administration might actually be a cause for celebration amongst crypto enthusiasts. An asset class that can be ignored by the White House might be easy to continue to brush off as a novelty, a fad, a meme. But an asset class that requires an entire government-wide regulation strategy? That, my friends, is simply a part of the mainstream economy.

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Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at [email protected].

Topics

ATL Finance, Cryptocurrencies, Finance, Finance Docket, Jonathan Wolf