A recap of the regulatory season in crypto

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It’s an open season when it comes to crypto regulation. The government of different countries continues to announce regulations for cryptocurrencies and their trading. These regulations could be either for or against cryptos. El Salvador has taken the reverse route of most governments and accepted bitcoin as legal tender. On a related note, the governments of countries like India and Nigeria remain firmly opposed to cryptocurrencies.

Related reading | Major U.S. City Mayor Advocates Bitcoin As Solution To Inflation

Effective regulations that will not stifle the growth of cryptocurrencies continue to be a hot topic of debate. Some lawmakers have shown their support for cryptos, such as US city mayor Scott Conger. While others continue to view them as a threat, as does Senator Elizabeth Warren.

A recent research paper postulated that a government-issued CBDC as a standard stable coin would be the best way to approach this.

Private currencies are wild cats

An article published by researchers at the Fed and Yale calls privately issued currencies “wildcats.” The document touched on the subject of stable coins. Emphasizing that the discussion of stable coins is inevitable. Because most cryptos trade against USDT.

The uninsured nature of private rooms was a recurring theme. With concerns being that the government should eventually bail out the citizens. Quoting that when uninsured projects like this fail, there is nowhere to turn but to governments.

Total Crypto Market Cap Now Hits Above $ 1.6 Trillion | Source: Total crypto market capitalization on TradingView.com

Unregulated currencies issued by individuals generally have no legal basis. Thus, the use of these parts puts the users in danger. As governments are not able to control these currencies. And therefore, the authors fear that stablecoins will evolve into an ecosystem similar to the free-banking era of the 19th century. This means that private entities can simply issue their own currencies and the value of the currencies would depend on the size of the issuing parties.

How to regulate crypto

The authors of the article mainly put forward two proposals to regulate stablecoins. The first being that existing stable coins should be converted into an equivalent of public money. This would be done by issuing these stablecoins through U.S. FDIC-insured banks. Or back up existing stablecoins on a 1: 1 basis with treasury bills.

Simply put, going this route would put cryptos under government control. The FDIC is a government agency that provides deposit insurance to banks. In addition, treasury bills are issued by governments.

Related reading | Why US Senator Warren gave the SEC a deadline to clarify crypto regulations

The authors also offered another option. The issuance of a digital currency by the US central bank (CBDC). And also, to tax the existing stable coins, in order to tax the private money of existence.

Any of these paths taken would result in government-controlled cryptocurrencies. Effectively eliminating the reason for cryptocurrencies in the first place, a decentralized monetary system controlled by no one. Fundamentally eliminate a vital part of why cryptocurrencies are so vital.

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