3 Crypto Regulation Predictions for 2022

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Stablecoins could be in the dock first, but Democrats could focus on other priorities to keep control of Congress in November’s midterm elections.

Key Points It is a virtual certainty that policy makers will focus on stablecoins. Congressional Democrats need high-profile legislative victories to keep control of the House and Senate. Crypto seems low on their priority list. If Congress doesn’t create crypto-specific laws, expect the Fed, SEC, and Treasury to modernize their existing regulations.

During the last half of 2021, we have heard a lot of political posturing regarding the regulation of cryptocurrencies. All the expected players weighed in, from the White House to the House of Representatives and many more from the Federal Reserve, the Security and Exchange Commission (SEC) and the Treasury Department. Despite all the talk of cryptos from politicians, hardly anything has happened on the regulatory front. Maybe this year will be different. Here are three realistic crypto predictions for 2022.

Stablecoins will be the first target

Stablecoins will almost certainly be the first target of any regulation, as they are the easiest form of cryptography to access and the greatest perceived threat to consumers, due to potential loss of value or access to the initial investment. Either way, stablecoins are a form of crypto issued and traded on blockchains, which are pegged to a “stable” asset such as gold, reserve currencies, or government bonds. This digital currency is designed to be less volatile and more secure than other crypto assets, thanks to this relationship with a tangible asset.

Politicians worry about stablecoins for these reasons:

The complete absence of investor protections such as FDIC insurance in the event of losses. Some stablecoins are backed by trade bonds, which can lose value or prevent investors from withdrawing money. holders. Some stablecoins are susceptible to liquidation by investors who empty their accounts at the same time. It’s akin to a “run on the bank”, when lending institutions have only a percentage of total assets, but nervous investors rush to withdraw funds, creating economic turbulence.

Finally, stablecoins could be seen as competitors to the US dollar, which could potentially undermine the use of the greenback and its place as a global reserve currency. Additionally, stablecoin regulations could easily be put under the Fed, and lawmakers want to focus their regulatory firepower on stablecoins first, in order to protect their turf.

Competing priorities will prevent Congress from acting

Lawmakers gathered for the second half of the 117th session of Congress with several other issues demanding their attention. The Democratic-controlled legislature is considering a range of policy priorities, such as approving a somewhat scaled-down version of President Biden’s ‘Build Back Better’ program, raising the debt ceiling to maintain credit lines open government and the passage of a controversial vote registration reform bill. . However, they are running out of time before the midterm elections in November.

The pressure is there. The only significant achievement Congress can point to in the past 12 months is the $1.2 trillion bipartisan infrastructure bill. So far, their most progressive initiatives have fallen flat. A lack of major legislative points is likely to mean poor results at the polls.

According to Gallup, presidents with job approval ratings below 50% saw their party lose an average of 37 House seats in midterm elections. A Dec. 20 Marist survey shows Biden’s approval languishes at 41% of those polled. Democrats may intentionally discuss crypto regulation to focus on things that help them retain their narrow House and Senate majorities.

Regulators will enforce existing regulations

This one isn’t too hard to figure out – Fed, SEC, and Treasury officials said that’s what they would do. For example, an Undersecretary of the Treasury publicly urged Congress in a recent Bloomberg interview to take swift action to regulate stablecoins, due to their perceived risk to the US economy and individual investors.

“If Congress does not enact legislation, regulators [SEC, Fed, Treasury, etc.] will try to use the authority they have,” but won’t have enough oversight powers, Nellie Liang, Treasury Undersecretary for National Finance said in the interview. “They can do a little here and a bit there, but if those are fundamental to crypto assets and they’re not stable, that could potentially be a big risk.”

But Democrats likely view losing control of one or both houses of Congress as an even bigger risk. And since crypto isn’t a major campaign issue that gets people to vote, we might see a lot more of nothing regarding cryptocurrency regulation before this year’s election cycle.

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