What I learned about crypto regulation from a week in DC

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WASHINGTON – In less than 36 hours, the first bitcoin futures exchange-traded fund (ETF) began trading, the underlying cryptocurrency hit a new high, and federal lawmakers dusted off their 2019 concerns about the stablecoin project linked to Facebook. Diem.

I spent most of DC Fintech Week in the U.S. capital reconnecting with people I haven’t seen in two years and putting faces on people I emailed during the pandemic. coronavirus but that I have never encountered. During these conversations, I have seen that the political / legislative landscape around crypto has matured considerably since my last visit. Federal lawmakers who don’t care in 2019 plan to come up with legislation regulating different aspects of the industry in the coming months.

This feature is part of CoinDesk’s Policy Week, a forum to discuss how regulators count with crypto (and vice versa).

There is also a better understanding of crypto. Much of the regulatory backlash at the end of 2019 focused on the then-Libra project, which was announced by social media giant Facebook that summer. Libra, at the time, was a fairly visionary project that policymakers saw as having the potential to destabilize the financial system. The project, now named Diem, has been fairly quiet over the past 10 months (despite this week’s news), and we’re seeing lawmakers focusing on larger swathes of the industry.

What happens in 2022 will depend on how the industry handles these issues and how regulators react to the industry.

It’s still early

You’d be forgiven for thinking that all of Washington, DC, is currently focused on crypto issues. There has been no shortage of regulators and policymakers revealing new work around crypto, from the pending stablecoin report from the President’s Task Force for Financial Markets, to the report on the central bank digital currency pending Fed, increased comments from Securities and Exchange Commission (SEC) Chairman Gary Gensler on crypto exchange registration and regulation or recent round of enforcement action against companies of the Commodity Futures Trading Commission (CFTC) sector.

The story continues

However, it is still early enough for the industry. Many lawmakers have heard of crypto, but it is not of pressing concern to them. And that’s even after the industry helped delay a massive bipartisan infrastructure bill over just one provision that affected it.

The crypto industry is stepping up engagement with Washington. In an article on CoinDesk’s Crypto 2022 Policy Week coverage, Rob Garver wrote that companies and trade groups are increasing the number of lobbyists tasked with lobbying for crypto-friendly regulations.

This commitment, however, is somewhat mixed. At least one congressional staff member described interacting with new lobbyists as “painful,” a comment I have heard echoed by other industry participants.

We’re also seeing an increase in angry tweets and other social media posts aimed at specific lawmakers or regulators. I am told that these are extremely unnecessary in terms of communicating political concerns. Great for engagement, however.

Crypto has arrived

Even though it’s not a priority, lawmakers and regulators are thinking more about crypto than in the past. We see this in the fact that aspiring ETF issuers obtain regulatory approvals to list retail accessible trading products and that we are awaiting no less than three different government reports on aspects of the crypto industry that will inform the market. Politics.

One of the biggest issues may simply be the differences in how different regulators or lawmakers view crypto. People focused on consumer protection may worry about stock exchanges closing whenever crypto markets become volatile, while securities / commodities-focused regulators may be more worried about the war between. the different agencies who can regulate what.

And much attention is paid to the use of crypto in criminal activities such as ransomware payments.

Industry, as a collective, must tackle all of these issues. Regulations are coming whether or not the industry takes action. The severity of these regulatory measures may depend on the degree of industry proactivity.

Concerns about stablecoins are real

Concern over Libra has turned into concern over stablecoins in general. The revelation that neither Tether (USDT), the largest stablecoin by market capitalization, nor USDC, the second most issued US dollar-backed stablecoin, are fully backed by US dollars held in regulated bank accounts, has failed. helped a lot.

But while regulators seem to agree that something should be done to curb stablecoin issuers, we don’t yet have a clear idea of ​​how it could be done. The president’s task force will issue a report that may recommend the creation of a special-purpose bank-like charter to oversee stablecoin issuers.

This charter would likely benefit stablecoin issuers and exchanges that list dollar-indexed tokens by granting a certain level of legitimacy to projects.

However, the task force will ask Congress to enact legislation creating this charter, and I’m told that probably won’t happen.

The alternative is to ask the Financial Stability Supervisory Board to create a rule around this issue, which lawmakers and industry players have opposed.

Another school of thought focuses on the treatment of stablecoins backed by commercial paper and short-term securities like money market funds, which means something the SEC would regulate. This probably wouldn’t be ideal for crypto exchanges that list stablecoins like USDT and USDC (Coinbase, for example), as those companies would have to register with the SEC as a trading platform for titles and adhere to a specific set of rules.

It also appears to be an industry manufacturing issue, but there are too many changes to see how these regulations will actually evolve.

I joked about everything that happened in 2021 with every person I spoke to. And yet 2022 is shaping up to be an even more eventful year for crypto politics on several fronts. Watch this space for a more lively debate in the months to come.

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Kristin Smith: Crypto is too big for partisan politics

Lyn Ulbricht: Put American Geeks to Work, Don’t Cage Them

Preston J. Byrne: The challenge of decentralization for policymakers is coming

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Brussels perspective: how the EU plans to regulate crypto

Raul Carrillo: In defense of the OCC candidate Saule Omarova

DeFi is unlike anything regulators have seen before. How should they tackle it?

Bennett Tomlin: What could become of Stablecoins

Gensler for a Day: How Rohan Gray Would Regulate Stablecoins

Alex Adelman & Aubrey Strobel: Kill the BitLicense

Opinion: How to do business as a DAO

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