New Crypto Legislation on the Horizon Following the Recent Crash

Neither this post nor any other on cryptofal.com should be taken as financial advice. It is not.

As early as next week, a defining bipartisan sponsored bill on cryptocurrencies could reach the Senate floor for voting.  The Senators behind the legislation, Cynthia Lummis, a Republican from Wyoming, and Kristen Gillibrand, a Democrat from New York, have joined together to draft and introduce a bill that would be a “broad-based regulatory framework” for crypto.  If passed, this bill would classify the varying types of crypto assets and define which agencies would hold jurisdiction over said assets.

This announcement comes at the heels of the recent crash of the crypto market due to the collapse of the stablecoin TerraUSD.  This signaled to lawmakers how the crypto industry suffers the same woes of the banking and finance world, only without the protection of the government and its regulatory apparatus. What happened with TerraUSD was the equivalent of a bank run in the finance world—in fact, much of the woes of finance are now plaguing those in crypto.  Aside from the many scams and rampant theft, insider trading has also been on the rise. A recent article by the Wall Street Journal pointed out the ways in which crypto exchanges are struggling to deal with information leaks and how having undefined regulations exacerbate the growing industry’s many issues. 

It comes as no surprise that any legislation regarding cryptocurrencies will be expedited after the recent crash.  It’s even less of a surprise that stablecoins, particularly algorithmic stablecoins, are on the regulatory agenda. Bankers and economists alike have long feared that a crypto meltdown could bleed over into the traditional finance world, but the recent crash seems to have left the wheels of traditional finance turning and relatively unscathed.  Unfortunately, the same is not true for the many investors of crypto.  The sole burden for platforms and companies in the crypto space is now twofold—protect their profits and the market from crashes while simultaneously protecting investors.

Meanwhile, there is little that crypto companies can do other than guess the direction lawmakers will vote.  Until this framework is solidified, the burden of protection, enforcement of rules, and policing that exists outside the scope of the government, will continue to be handled in-house.  Therefore, a clear path of government engagement is both timely and necessary.