Treasury Crypto reports long on details, short on urgency
Anyone expecting the plans for legislation to regulate cryptocurrencies from the three reports released by the Treasury Department on Friday (September 16) will be sorely disappointed.
While comprehensive, the reports produced in line with President Biden’s March 10 executive order on cryptocurrencies and digital assets do not make many specific recommendations or policy decisions other than one that focuses on illicit financing.
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 broad statements of intent.
What the reports do not include is a sense of the urgency of the need to provide a specific set of rules and regulations governing the cryptocurrency industry, including stablecoins and central bank digital currencies.
There is a reason for this that is clearly described in the report on cryptoassets: the Ministry of Finance does not think it is so urgent because crypto has not started to affect the wider financial markets and the economy.
“Despite the recent expansion in the number and type of cryptoassets and activities, cryptoasset products are primarily used to trade, lend and borrow other cryptoassets,” it said. “Their use to perform other activities is currently limited and the potential for blockchain technology to transform the provision of financial services, which is supported by developers and advocates, has yet to materialize.”
In a section dealing with the scams, fraud, theft and market manipulation rampant in crypto, the Treasury said, “the potential economic inclusion benefits of crypto assets have largely yet to materialize.”
Much of the same can be seen in the “Future of Money” report’s view of stablecoins:
“While stablecoins are currently primarily used to facilitate trading, lending or borrowing of other digital assets, advocates believe that stablecoins could be widely used as a means of payment by households and businesses, as well as offering some improvement in the efficiency of cross-border payments by to reduce the number of intermediaries in a payment chain.”
A foundation
In releasing the reports, Treasury Secretary Janet Yellen called innovation “one of the hallmarks of a vibrant financial system and economy.”
But she added, “innovation without appropriately addressing the impact of these developments could result in significant disruption and harm to the financial system and individuals, especially our more vulnerable populations.”
What the reports aim to do, her statement said, is “clearly identify the real challenges and risks of digital assets used for financial services… [and] provide a strong foundation for decision makers as we work to realize the potential benefits of digital assets and to mitigate and minimize the risks.”
What will be next
To some extent, the reports said the political need for an immediate bill isn’t there, in part because Congress has already conceded nothing will get done this year, especially with what promises to be a highly divisive election coming up in less than six weeks .
Read more: Senate crypto bill debuts and crypto industry reaps big gains
Still, the Treasury Department’s approach means the bill from Sen. Cynthia Lummis (R-Wyo.) and Sen. Cynthia Gillibrand (DN.Y.) will have much more time to influence the agenda if nothing else than it already has. the only specific approach to questions such as when a cryptocurrency is or is not a security – which has a major impact on its use in payments, as security tokens will require capital gains tax on each transaction.
Despite a heightened sense of urgency for stablecoins after a run last spring that saw some $48 billion in investments disappear, political differences have largely led Republicans and Democrats to agree that neither will happen before 2023.
See also: US Stablecoin Bill hits snag as negotiations break down
This is not to say that some legislation isn’t coming, just that we haven’t seen the shape yet.
More of the same
The recommendations in the report on cryptoassets cover three broad areas: the need to crack down on illicit activity; the need to continue to enforce existing regulations while developing new ones to fill the gaps; and the need to launch a comprehensive effort to educate consumers, investors and businesses about safely engaging in digital assets.
The report calls for increased oversight of consumer protection agencies, regulators and law enforcement, as well as improving and expanding interagency enforcement coordination and intelligence sharing.
Another recommendation to raise the hackles of crypto investors and developers is a call for more aggressive action by existing regulators to issue guidance and rules “as needed” and to clarify existing regulatory requirements. It also requires better “plain language” guidance.
While clear regulation is what the crypto industry has been clamoring for the loudest, what they want is a uniform new set of rules – and more specifically rules that give more room for innovation and in particular get most cryptocurrencies out of the control of securities. and Exchange Commission. For his part, SEC Chairman Gary Gensler has made it abundantly clear — anything but bitcoin is a security — and the agency has been aggressively enforcing it.
A third and final recommendation is that the Financial Literacy and Education Commission (FLEC) “ensure that American consumers, investors and businesses have access to reliable information about crypto assets” about how the crypto industry and technology works so that they can understand the risks as an investment and on areas including the risks of crypto investing and the frauds and thefts specific to the industry.
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