Government Regulation on Crypto Nears
Reports have surfaced that President Biden will issue an executive order in February to call for recommendations on cryptocurrency regulation from a variety of government agencies.
Despite the competing desires over the outcome, the question of how to handle this growing industry has weighed heavily on the minds of officials and the crypto community alike. Movements from all corners of the federal government have indicated a comprehensive plan from the Biden Administration is indeed on the horizon, with or without an executive order.
This past November, the President's Working Group on Financial Markets (PWG), Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), issued a fact sheet on stablecoins and concluded it by asserting the need for further oversight.
Later that month, another joint press release on crypto assets, this time from the Fed, FDIC, and OCC, concluded that “throughout 2022, the agencies plan to provide greater clarity on whether certain activities related to crypto-assets conducted by banking organizations are legally permissible” and that based on the research from their staff, “public clarity is warranted.”
Congressional interest in cryptocurrency, mining, and blockchain technology has also increased, as indicated by the influx of bills introduced last year to attempt regulating the space.
Many of these moves seem sudden, but in truth, a number of agencies have begun quietly creating positions, offices, and task forces focused on cryptocurrency and blockchain technology since at least 2020. The Securities and Exchange Commission (SEC) announced that the Strategic Hub for Innovation and Financial Technology (FinHub), formerly under the Division of Corporation Finance, would become a stand-alone office.
Part of FinHub’s purpose is to lead “agency efforts to encourage responsible innovation in the financial sector, including in evolving areas such as distributed ledger technology and digital assets.” The Department of Justice (DOJ) created a National Cryptocurrency Enforcement Team (NCET), while not long before that the Financial Crimes Enforcement Network (FinCEN) announced the appointment of a Chief Digital Currency Advisor.
Among all the reports that exist from these agencies and their newly formed offices, one thing remains painfully evident and that is the lack of knowledge many of them have regarding the technology and assets they are charged to control. Another obvious fact is that regulation is inevitable. It would not be surprising for the President to appoint an executive-level position in the coming months specifically focused on cryptocurrency – a Crypto Czar.
While regulation is regarded as the worst-case scenario for crypto supporters, the outlook is not completely negative. Regulation will tighten restrictions, but defining the space also gives a certain level of freedom to develop and mature the industry.
There will be less ambiguity on what is considered legal and the methods of operation will become clear. With the industry better defined, businesses and investors will be eager to onboard and with fewer inhibitions. This outcome however depends heavily on the way the industry chooses to participate with the government.
Lobbying, consulting, and even working for agencies would ensure the interests of the community are integrated into the proposed legal framework. As this situation is constantly evolving, vigilance is a necessity, but engagement is optimal.