The White House blamed Congress on Friday for delaying the creation of a comprehensive, national regulatory framework for cryptocurrencies, citing a number of steps that lawmakers may take to combat fraud and dishonest individuals in the industry.
Four of President Biden’s closest advisors argued in a Friday morning blog post on crypto policy that Congress “has to ratchet up its efforts.”
The essay then lists several actions Congress may take right away to ostensibly improve consumer protection regulations in the cryptocurrency industry.
These actions include giving federal regulatory organizations like the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) more authority; enhancing the transparency and disclosure standards for cryptocurrency companies; assisting law enforcement by increasing funding; toughening the penalties for current financial rules; and improving those rules to penalize intermediaries; as well as passing legislation to regulate stablecoins, as described in a recent report.
Stablecoins are digital currencies whose values are linked to reliable assets like gold and the US dollar. This connection is intended to maintain the stability of stablecoin values throughout periods of market instability. The so-called algorithmic stablecoin UST de-pegged from the U.S. dollar and later collapsed, setting off a series of events that resulted in the loss of about $40 billion in value, in May of last year, was the most notable test of that idea. Instead of having a reserve of dollars to support UST, an algorithm was used to maintain its worth. This algorithm’s failure is at least partially to blame for the present crypto winter.
In the Friday message, Biden’s advisers also issued a warning that the just sworn-in Republican House of Representatives would make matters worse by relaxing restrictions at such a pivotal time.
The advisors stated in their letter that:
Congress could also make our jobs harder and worsen risks to investors and to the financial system. It would be a grave mistake to enact legislation that reverses course and deepens the ties between cryptocurrencies and the broader financial system.
The caution appears to be a reference to the newly established Subcommittee on Digital Assets, Financial Technology, and Inclusion that the House Republican leadership recently made public. Representative French Hill (R-AR), the committee’s leader, has said he wants to “encourage responsible innovation” in the cryptocurrency and FinTech industries.
President Biden hasn’t exactly made it a priority either in the two years from early 2021 to just a few weeks ago, when Democrats controlled the presidency, the House, and the Senate. However, the White House was quick to accuse Republicans for crypto-related delay. Several scandals rocked the cryptocurrency industry at that time, including the collapse of UST in May and the collapse of the $32 billion crypto exchange FTX in November.
There are numerous cryptocurrency proposals circulating in Washington right now, but none have been put to the vote. In December, the Senate received the Stablecoin TRUST Act, which would provide a national regulatory framework for “payment stablecoins.” Since last June, the Senate has been debating the Lummis-Gillibrand Responsible Financial Innovation Act, which would grant the CFTC authority over cryptocurrency regulation.
The SEC’s power to oversee the cryptocurrency business would have been similarly constrained by the Digital Commodities Consumer Protection Act (DCCPA), which was introduced in August. The notorious FTX founder Sam Bankman-Fried, who spent tens of millions of dollars on political donations and a lot of time in Washington in the months prior to the bill’s introduction, was behind the plan, which was seen as a benefit for cryptocurrency exchanges.
In the lead-up to the 2020 presidential election, an organization supported by Bankman-Fried received $5 million in donations; the White House has repeatedly declined to comment on the topic.
The DCCPA did win bipartisan support from lawmakers in the autumn, but its connection to Bankman-Fried—who is presently facing eight criminal accusations, including conspiracy to commit money laundering and fraud—could scupper its chances of becoming law.
Sen. Elizabeth Warren says the cryptocurrency industry is “afraid of a strong SEC”
On Wednesday, Massachusetts Senator Elizabeth Warren spoke out strongly against the cryptocurrency sector and urged the U.S. Securities and Exchange Commission to take additional action to combat crypto fraud. Industry participants are “scared of a robust SEC,” according to Warren’s prepared remarks, which he made before the American Economic Liberties Project.
Because celebrity crypto promoters did not disclose their compensation to the public, the SEC brought enforcement actions against them. For insider trading, it has pursued personnel at exchanges like Coinbase. It has accused cryptocurrency criminals of bilking unsuspecting investors out of millions of dollars, according to Warren, who also noted that the organization is just getting started.
1:30PM: We’ll kick off an event with @RealBankReform and @SenWarren to examine the rise and fall of the crypto industry — and what it means for policymakers.
RSVP here. You won’t want to miss it.https://t.co/nj8xsJbPur pic.twitter.com/A1saROKeZU
— American Economic Liberties Project (@econliberties) January 25, 2023
Along with the SEC, numerous U.S. authorities have entered the cryptocurrency market, including the Department of Justice (DOJ), Federal Trade Commission (FTC), Federal Deposit Insurance Corporation (FDIC), and Commodity Futures Trading Commission (CFTC), in addition to numerous State agencies.
Warren stated that she thinks the SEC and its chair Gary Gensler are best prepared for the role, despite the fact that others in the cryptocurrency business would prefer to work with the CFTC. She also commended the organization for preventing the market entry of Bitcoin exchange-traded funds (ETFs).
The commission has made it abundantly apparent that long-standing security laws protecting investors and preserving the integrity of our financial markets do not apply to cryptocurrency, according to Warren.
This is the proper course of action—the SEC has the proper regulations and the proper expertise, and Gary Gensler is proving that he is the proper leader to complete the task.
While Warren extols Gensler, many in the field and even some of Senator Warren’s congressional colleagues have doubts about Gensler’s capacity to do his duties. The chairman has come under fire for allegedly being lenient with Sam Bankman-Fried and FTX as well as for what many refer to as regulation by enforcement, picking and choosing who to target at random and putting some businesses out of business.
Warren stated that in order for the SEC to effectively regulate the entire crypto market, it “has to do even more and employ the full force of its regulatory authorities.” She added that Congress must provide the agency with additional funding and authority so that it can do so.
Another justification for the need for the SEC and more extensive regulation, according to Warren, is the collapse of numerous cryptocurrency businesses in 2022, including Celsius, FTX, Voyager Digital, and Three Arrow Capital.
Warren urged environmental agencies to pursue cryptocurrency miners, whom she charged with raising energy prices and degrading the environment. Regulators have long called for the banning of cryptocurrencies due to concerns about the environmental effects of cryptocurrency mining.
Warren accused former President Donald Trump’s administration’s regulators of prematurely approving the crypto market, which she described as being “full of garbage tokens and unregistered securities, rug poles and Ponzi schemes, pump and dumps, money laundering, and sanctions evasion.”
“The results of Trump’s regulator’s incompetence were predictable: by 2017, approximately 80% of all initial coin offerings were frauds.” she added. Investors lost over $9 million per day to cryptocurrency frauds the following year.
Warren praised the SEC for taking action against businesses that offered “dangerous and unregulated crypto loan products,” citing the newly insolvent company BlockFi as an example.
Additionally, she claimed that “crypto-friendly” financial institutions like Silvergate were putting the banking system at greater risk of “crypto failure,” which would leave American taxpayers holding the bag.
She stated that it was the responsibility of bank regulators to protect the financial system and taxpayers from the risk of cryptocurrency fraud.
They need to use the tools they have
Senator Warren and U.S. Senator Roger Marshall co-signed a bill known as the Digital Asset Anti-Money Laundering Act in December in an effort to combat self-custody wallets. Know-your-customer (KYC) rules would be imposed by the proposed legislation on blockchain infrastructure providers and players operating in the US. This stipulation would apply to miners, validators, and creators of decentralized networks.
Warren’s comments were part of a virtual panel talk called “Confronting the Crypto Challenge: Learning From a Meltdown”.
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