Three Main Areas of Focus in President Biden’s Cryptocurrency Guidelines
For the first time ever, the Biden administration has released a proposed framework concerning the regulation of cryptocurrency. It follows up an executive order issued by the president in March that called for a risk-benefit analysis of the entire industry.
One of the chief areas of focus is fighting illegal activity within the crypto and NFT space. This could include an expansion of the Bank Secrecy Act, increased penalties for unlicensed money transmitting, and expanded jurisdictions in regard to digital asset crimes.
It’s a significant area of need for crypto in particular. The FTC says more than $1 billion in digital coins has been lost to fraud since the beginning of last year.
The White House’s framework argues that there could be “significant benefits” to the adoption of a U.S. central bank digital currency, also known as CBDC. This would essentially be the US dollar in digital format. It would be fully regulated and have the full faith and backing of the Federal Reserve.
Fed Chair Jerome Powell has gone so far as to suggest establishing a digital U.S. dollar that would eliminate the need for USD-pegged stablecoins, which use algorithms to tie their value to that of the U.S. dollar.
Per the White House guidelines, CBDC could offer a more efficient and environmentally stable option. The report urges the Fed to continue its research on the idea.
Stability and Safety
Members of Congress and Fed officials have both raised concerns about the need for more financial stability within the crypto space. For example, the collapse of TerraUSD (UST) caused a panic that some in the financial community have compared to a bank run. Broadly stated, regulators worry about stablecoins because they link to the US dollar, but aren’t regulated by central bankers.
To this end, the Biden administration’s framework keys in on stablecoins to make them safer. This includes suggested collaboration between the U.S. Treasury, financial institutions, and international allies such as the Financial Stability Board.
We could truly be approaching the tail end of crypto’s Wild West days. These proposed guidelines – as well as last week’s successful Ethereum “merge” – suggest a new digital era may be upon us.
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