US politicians are failing to grasp bitcoin, which was created in part to bypass them.
Bitcoin, once a clunky, niche currency lauded in the dark corners of the internet by technophiles and privacy activists, has permeated both popular culture and the financial mainstream. In 2021, cryptocurrency made its debut on major financial services such as Venmo, Robinhood, and Cash App, and a rising number of banks, traditional financial institutions, and even non-financial organizations are working hard to include cryptocurrency into their products.
Legislators and regulatory agencies have taken notice. Following the 2008 financial crisis and accompanying bailout, bitcoin was envisaged as a digital alternative to fiat currencies such as the US dollar, allowing users to bypass the authority of banks and governments. However, as Bitcoin grows in popularity and becomes more intertwined in banking and trade, it may no longer be able to elude Uncle Sam’s clutches. The fundamentals are outlined here.
Why are authorities interested in regulating bitcoin and other cryptocurrencies?
The capacity of bitcoin to move value without the involvement of a bank or government, as well as the enormous quantity of money presently involved, has piqued politicians’ curiosity. Over time, and frequently in the aftermath of economic disasters, the United States has established a complex set of rules controlling most forms of financial transactions in order to safeguard the public, deter fraud, and protect the economy from risk and hazard. However, the rate at which cryptocurrency is consuming the interest and cash of American investors is bringing the problem to the forefront in Washington.
Last August, the Senate passed an infrastructure spending bill to fix outdated roads and bridges, boost high-speed internet access, and address challenges ranging from clean drinking water to climate change.
However, an earlier draft had several major aspects addressing cryptocurrency law. A proposal that would have compelled so-called “crypto brokers” to provide tax data to the IRS, much like brokers of other assets such as stocks, bonds, and commodities, was particularly noteworthy.
The bitcoin provision was ultimately removed from the spending package owing to arguments over the concept of who might plausibly be classified as a crypto “broker.” Lawmakers couldn’t agree on whether or not to include crypto miners, transaction validators, and software developers. However, this problem may resurface in the future.
Which government agencies and legislators are pushing for new crypto legislation?
As a small collection of existing legislation and current proposals in Congress (including H.R. 1628 and H.R. 3723) continue to consolidate into an informal legal framework, crypto exchanges, most notably Coinbase, have emerged as a focus of Washington’s attention.
Gary Gensler, the chairman of the Securities and Exchange Commission, has been one of the more vocal proponents of government regulation of Bitcoin. Before Biden appointed Gensler to his present position, he was a professor at MIT, where he taught a Bitcoin course.
Coinbase planned to launch Lend, a new crypto-lending platform, in the fall of 2021. However, the exchange swiftly abandoned its intentions after the SEC threatened to suit, alleging that it deals in unregulated securities.
The SEC’s statement about Lend occurred one month after Gensler wrote to Senator Elizabeth Warren. In it, he reiterated the SEC’s stance on cryptocurrency regulation, stating that more resources are required to assist investors, transactions, products, and platforms, as well as expressing a desire for further legislation and power.
What role will the SEC have in cryptocurrency legislation?
In a Congressional hearing, Gensler addressed crypto issues further, outlining the SEC’s planned goals as well as the SEC’s control of crypto assets.
Gensler believes cryptocurrency may create change, but he is skeptical of its long-term viability in the absence of governmental control. His prepared statements imply that the SEC will continue to investigate the sale of tokens, trading and lending platforms, stable value coins, crypto derivatives, crypto asset custody, and other related activities.
“We’re collaborating with our brother agency, the [US Commodity Futures Trading Commission], since our two agencies have important, and in some circumstances, overlapping authority in the crypto markets,” Gensler said in his remarks. “On these issues, we are collaborating with not just the CFTC, but also the Federal Reserve, the Department of Treasury, the Office of the Comptroller of the Currency, and other members of the President’s Working Group on Financial Markets.”
Gensler also shared his thoughts on the SEC’s jurisdiction over securities, including cryptocurrency: “Make no mistake: To the extent that there are securities on these trading platforms, they must register with the Commission under our regulations unless they qualify for an exemption,” Gensler said in his speech.
What motivates the federal government’s interest in regulatory action?
In September, a fraudulent press release purporting to be from Walmart regarding a partnership with litecoin, one of the lesser-known cryptocurrencies, caused litecoin’s value to jump to more than $200 before media outlets were able to determine the story was false. Litecoin subsequently reverted to its previous value, but it’s probable that the fraud made the culprits a sizable profit because they were positioned to buy cheap and sell high.
Pump-and-dump tactics are frequent in the cryptocurrency market, providing politicians with plenty of fodder for their arguments in favor of crypto regulation. Indeed, the widespread use of bitcoin in high-profile ransomware attacks on American firms large and small – as well as government agencies – has alarmed politicians, because ransoms paid in cryptocurrency are often considerably more difficult for authorities to monitor and retrieve money paid.
Overall, bitcoin as an asset remains mostly uncontrolled in the United States. While more laws may alleviate some investor and regulatory concerns about cryptocurrency’s volatility and potential for criminal activities, bitcoin remains largely detached from governments and traditional financial institutions for the time being. Most cryptocurrencies are now decentralized and independent. If US politicians want crypto legislation with teeth, extensive cooperation between foreign agencies is going to be required – a huge issue.