As fears that Russian oligarchs will use bitcoin to bypass harsh sanctions push the regulation of cryptocurrencies to the top of the political agenda, President Joe Biden is about to take real action, according to reports.
In the coming days he will tell federal agencies to take several months to report “examine potential regulatory changes, as well as the national security and economic impact of digital assets,” Bloomberg said Tuesday (March 7), citing anonymous sources.
That does sound a bit less ambitious than the unsourced reports in late January that lead Bloomberg to predict that federal agencies would be tasked with designing a comprehensive strategy for cryptocurrencies and central bank digital currencies (CBDCs).
See also: Biden’s Executive Order May Trigger Crypto Regulatory Spree
Last week, Acting Federal Reserve Chairman Jerome Powell told the House Financial Services Committee that the conflict “underscored the need for Congressional action on digital finance including cryptocurrencies.”
“We have this burgeoning industry which has many parts to it, and there isn’t in place the kind of regulatory framework that needs to be there,” Powell added.
If that sounds to you like the clear digital asset regulatory framework the crypto industry has been asking, lobbying and begging for since sometime around 2018 isn’t coming anytime soon — well, that might be the case.
Related: Crypto Regulation Discussions in Congress Are Becoming More Sophisticated
How Fast Is Fast
As underwhelming as the report sounds, that may be an unfair take. The actual wording could be a hard push to get to the semi-final round now, or it could be the start of a long series of discussions taking place formally that have been taking place informally for quite a while now.
Besides, government does not move very quickly when an entirely new industry is brought into the regulatory system, and with fairly good reason: Getting it wrong could do far more damage than doing nothing.
Read more: Regulating Crypto Will Drive Innovation if Done Right, Economist Argues
An executive order could be exactly the match needed to set off the long-time-coming burst of regulatory fervor that will set the ground rules and shape the direction of the cryptocurrency and blockchain industry for decades.
Start with whether or not Securities and Exchange Commission Chairman Gary Gensler gets his way on labeling just about every cryptocurrency out there a security subject to his agency’s tough and onerous oversight.
See also: Gensler: SEC Is Coming for Crypto Exchanges
Then, look at the recent proposal by the President’s Working Group of Financial Markets’ November stablecoin report, which recommends that all of the fiat-backed, dollar-pegged cryptocurrencies should only be issued by a regulated and federally insured bank.
These are big issues: The SEC’s perspective would make it much harder to use the tokens needed to power the many innovative centralized and decentralized finance (CeFi and DeFi) platforms that both promise and threaten a sea change in every part of the financial industry.
Read more: At Senate Hearing, CFTC Chair Behnam Steps Up Battle With SEC for Crypto Oversight
That’s especially true from a payments perspective, as selling $5 worth of a security to buy a cup of coffee would potentially require a capital gains tax filing. While one or two such payments would be unlikely to trigger any trouble, hundreds or even thousands of small transactions over the course of a year could add up to real money — making figuring it out a nightmare.
Additionally, the stablecoin report could effectively put a crypto tool — designed in many ways to cut banks and other financial middlemen out of financial transactions — entirely under their control.
Time Is Running Out
That said, the need for a comprehensive U.S. regulatory framework for crypto is getting more urgent. On March 14, the European Union Parliament’s preliminary Monetary Committee vote on the proposed Markets in Crypto Assets, or MiCA, legislation.
While European legislators recently removed a section that would have banned proof-of-work — and, de facto, bitcoin — other amendments, like a version of the Travel Rule that would require banks and exchanges to store customer data on any transaction of more than €1,000 be changed to all transactions — are still on the table.
Related: EU Starts to See the Unintended Consequences of Crypto Regulation
The point here is less the impact of any particular regulation passed by the EU than the reality that the longer these regulations are in place without U.S. regulations in place, the more influential they will be to other countries writing their own laws.
It’s also worth noting that the MiCA regulation vote has been delayed for years as the text itself was scrutinized by legislators, industry and lobbyists, and potential problems came to light.
That’s time the U.S. may not have if it wants to remain a hub of innovations for digital assets.
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