Will this new bill be bad news for the crypto market?

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For months, the U.S. crypto industry has speculated on what form increased regulation might take. This week, we got answers in the form of a new crypto bill that has been submitted to the House of Representatives.

The Digital Asset Market Structure and Investor Protection Act 2021, introduced by Representative Don Beyer, sets out a framework designed to eliminate many gray areas that exist in crypto legislation.

The industry has recently come under intense scrutiny. Elizabeth Warren asked if the SEC has enough authority to control crypto exchanges, and Federal Reserve Chairman Jerome Powell has said further regulation is needed.

As a result, the measured – and at times positive – tone of the new bill is almost refreshing.

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What is covered by Beyer’s crypto bill

Introducing the bill, Beyer said that “digital assets and blockchain technology hold great promise, and it’s clear that assets like Bitcoin and Ether are here to stay. “

However, he called the current laws “behind the times” and argued that a comprehensive framework for digital assets would protect investors, foster innovation and create jobs. Beyer said that many of the 20 to 46 million Americans who own Bitcoin are “average Americans” rather than large institutional investors. And he argued that too many people had been victims of frauds and hacks.

Here are some of the bill’s proposals and why they are important:

Define which ministry is responsible for which assets

A challenge for crypto regulators is that it falls under the jurisdiction of several different authorities. This allows bad actors to easily fall through the cracks. Cryptocurrencies work in different ways. Some are simple currencies, some are programmable blockchains, and some are more like traditional titles. The bill would categorize the different types of digital assets and define which ministry would regulate them.

Dispelling the confusion over what qualifies as a cryptocurrency exchange

The bill also wants to differentiate between money service companies (MSBs) and stock or commodity exchanges. Right now, U.S. cryptocurrency exchanges are required to register as MSBs, but some may be better defined as stock exchanges – and should follow more stringent regulations.

Formalize digital assets into “monetary instruments”

This would mean that cryptocurrencies would be subject to existing anti-money laundering (AML) and reporting requirements. It is not yet clear how this would impact anonymous decentralized exchanges, as the main purpose of anti-money laundering legislation is to remove anonymity.

Open the door for a digital dollar

The Federal Reserve announced earlier this year that it was considering a digital dollar. This would have the benefits of cryptocurrencies – like fast transactions and increased security – but without the risks. As a centralized currency, it would be backed by the government – just like the dollar is.

Hang on to stablecoins

Stablecoins are cryptocurrencies linked to other commodities such as gold or the US dollar. They have been criticized recently because there is not enough transparency as to whether they are backed by sufficient liquidity to support the number of coins in circulation. Authorities are also concerned that stablecoins could operate like banks, but without the same level of regulation.

Require clear warnings to consumers on certain products

Right now, various decentralized finance (DeFi) apps offer products that look like traditional bank savings or loans. Indeed, the whole interest of DeFi is to remove the intermediaries – the banks – from these activities. But removing banks also reduces consumer protection. For example, a DeFi savings account may not have FDIC insurance. The new bill would force consumers to understand what protections they have and do not have.

How will the bill impact the crypto market?

The bill is still in its infancy and will likely be adapted and amended as it evolves in the House. However, as it stands, it appears to solve a number of legitimate issues without being too burdensome.

Long-term

Increased regulation of cryptocurrencies is inevitable. But it could help boost consumer confidence and the adoption of digital payments. This will almost certainly undermine Bitcoin’s original ethics, which were designed to cut central authorities off from financial transactions. But if cryptocurrency is to continue to be adopted by the general public, clearer rules are essential. And many in the industry would actively like more advice.

For example, the SEC is currently pursuing a lawsuit against the Ripple cryptocurrency (XRP). The SEC argues that Ripple acted like a security, not a cryptocurrency, and as such broke US security laws. But since the rules on what is and what isn’t a cryptocurrency weren’t clearly defined, Ripple executives argue they haven’t done anything wrong.

Or, to give another example, take the stablecoin Tether (USDT). We have a coin that’s supposed to be pegged to the US dollar, but it hasn’t always had enough reserves to support itself. So if a lot of people are scared and suddenly want to take all of their Tether out, we can’t be sure they could. It is something that consumers should be protected from.

This is before examining the various cases of fraud and misrepresentation that have cost investors millions of dollars. When you buy cryptocurrency today, it is difficult to know if you can trust the information provided. And in an industry with a market capitalization of over $ 1.5 trillion, that’s a concern.

Short term

Increased regulation will likely affect cryptocurrency prices in the short term as the market adjusts to the new rules. Any further regulation is likely to sow fear and uncertainty. And Beyer’s bill is just one of many pending proposals.

But overall, the bill is a great place to start. We will need to monitor what other agencies are proposing and see if the bill is strengthened or watered down as it moves through the legislative process.

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