America Has to Take the Lead in Crypto Regulation
MAY 6,2024
NR.BALOCH
The United States needs to utilize the upcoming year to encourage transparency and confidence in the digital asset market if it hopes to keep its position as a global rule-maker and avoid turning into a rule-taker. The United States of Am
erica has three options for preserving its competitive advantage in cryptocurrency: designation, regulation, and legislation.
Compared to 2022, which proved to be a catastrophic year for the digital asset markets, 2023 was marked by proactive regulatory measures and favorable industry advancements. The largest cryptocurrency exchange in the world, Binance, and US regulators have reached a deal that is expected to increase market-wide responsibility, openness, and confidence. In the meantime, the majority of international financial hubs have established precise rules for the cryptocurrency sector.
Even with this progress, if new regulations are not established in 2024, the US runs the risk of being an exception. Three possible avenues exist for policymakers to manage opportunities and hazards in the cryptocurrency market: designation, legislation, and regulation.
When US President Joe Biden issued his Executive Order on Ensuring Responsible Development of Digital Assets two years ago, it was a significant step toward bringing regulatory clarity. Despite the fact that almost all digital assets are valued in US dollars, legislative measures have since faltered, and the US has lagged behind other nations in industry regulation.
The irony is that international efforts to regulate the cryptocurrency market have been spearheaded by US-led organizations including the Financial Stability Oversight Council, the President’s Working Group on Financial Markets, and the Financial Stability Board. Treasury Secretary Janet Yellen, who chairs the Financial Stability Oversight Committee, has also pushed Congress to move legislation governing stablecoins denominated in dollars. Chair of the Federal Reserve Jerome Powell has repeated these demands.
The potential concerns connected to cryptocurrency are highlighted by these calls for legislation, which are reinforced by international regulatory authorities. Utilizing blockchain and other cutting-edge technologies would be a better course of action than allowing the industry to collapse or imposing strict regulations, as some economists advocate. This is because it will ensure that financial services can meet market demand outside of regular banking hours, a challenge that is particularly relevant to international payments. Now that almost all of the world’s largest banks, asset managers, fintechs, and payment services providers have created digital asset strategies, it is past due for US lawmakers to catch up and enact technology-neutral, morally-based laws that promote competition in the financial markets.
Congress must so provide federal regulatory bodies the authority to create market regulations. In spite of criticism from politicians such as former US President Donald Trump, who is expected to be the Republican Party’s nominee for president in November, this involves investigating digital currencies issued by central banks. Along with modernizing state and federal banking and payment systems, it also entails developing regulations for digital wallets. In order to preserve America’s competitive advantage and prevent a potential fintech “constitutional crisis,” several steps are essential.
The necessity for prompt action has again been stressed by the Treasury Department. Deputy Secretary Wally Adeyemo urged Congress to address the risks associated with illicit operations sponsored by cryptocurrency in November, citing the lack of regulatory control and the opaque nature of some cryptocurrency products. These items are financial fentanyl at worst, and financial alchemy at best.
American interests are threatened by the lack of a US regulatory framework for dollar-referenced stablecoins, which are becoming more and more licensed in places like Singapore, Hong Kong, and the United Arab Emirates. This void might encourage the development of goods that circumvent US laws and take advantage of consumer confidence in the dollar, thereby serving as a haven for unscrupulous operators.
The US must, at the very least, make sure that foreign issuers of stablecoins pegged to the dollar abide by the Bank Secrecy Act, as well as applicable sanctions, anti-money laundering, and counterterrorism legislation. If not, digital dollars might compromise global security instead of reducing the technological threats brought about by dollar primacy.
However, the US needs to create new regulations before labeling cryptocurrency companies or technologies as dangers. Although open-source technologies have previously been categorized as national security threats, significant token issuers or exchanges have not yet been designated as systemically important financial institutions—a designation that would imply they are too large to fail. Rather than permitting unrestrained offshore or near-shore cryptocurrency operations to flourish or letting other nations establish the parameters for a business that is as fundamentally American as the
There is a lot of policy movement because to the stablecoin bill that the House Financial Services Committee advanced in July 2023. If this bill is approved by Congress with bipartisan support, it will be the greatest legislative chance to address the rise in cryptocurrency dollar counterfeiting. Furthermore, it might be America’s last opportunity to continue dominating the markets for digital assets.
It will undoubtedly be challenging to move forward during a divisive presidential campaign. However, if the US wants to continue being a rule-maker rather than a rule-taker, digital asset policy must be advanced. This is especially important now that the Markets in Crypto-Assets (MiCA) framework of the European Union is about to take effect later this year, potentially producing a transatlantic gap in the regulation of digital assets.
This year’s US policy agenda for digital assets must prioritize worldwide regulatory harmonization over regulation, legislation, and designation in order to avert such a result. However, without clear regulations and American leadership in the cryptocurrency business, these initiatives would inevitably fail.
erica has three options for preserving its competitive advantage in cryptocurrency: designation, regulation, and legislation.
