The world of crypto is changing fast.
In November, prices reached dizzying heights. Then came the crash. Within a matter of weeks, cryptocurrency lost over half a trillion dollars in value in May.
TerraUSD, a cryptocurrency, was the most dramatic implosion. It was a stablecoin called “TerraUSD” which meant that its value was supposed be tied to the U.S. Dollar through a complex algorithm.
It plummeted and is now practically worthless.
The crash reaffirmed the need for new rules to regulate a crypto market that is still a wild frontier. We are now on the verge of making perhaps the most significant step towards new crypto regulation.
Last week, two senators aEUR”, a Republican and a Democrat, teamed up to present a new broad regulatory bill. However, it is being criticized by skeptics as too crypto-friendly and a step backwards.
Let’s find out what’s happening and who would regulate crypto.
Nearly everyone agrees that the crypto industry requires some form of regulation.
Every hour, new cryptocurrencies are created. Along with them, fraudsters and scammers flourish. The current industry is governed by a variety of state and federal regulations. These regulations haven’t always kept up with the pace of technology.
In the last few years, the Securities and Exchange Commission has brought numerous crypto-related enforcement actions. The Commodity Futures Trading Commission has also taken enforcement actions in relation to crypto-related issues.
Janet Yellen, Treasury Secretary, urged Congress to adopt comprehensive regulations regarding stablecoins after the May crash.
New York Democratic Senator Kirsten Gilibrand says that this stage of the evolution of the internet aEUR’ with cryptocurrency and other technologies collectively known as Web3 poses similar risks to early social media aEUR”, sometimes called Web2.
She stated that Web2 was not being regulated by Congress. “We did not create a regulatory agency for various platforms that are causing extreme harm to our youth, and dividing the country. Web3 is not the same.
It was introduced by Senator Gillibrand, Senator Cynthia Lummis (a Wyoming Republican) earlier this month.
It provides a framework to regulate the crypto industry.
These include tax requirements for digital assets and stricter requirements regarding stablecoins. Gillibrand claims that this would have prohibited TerraUSD from being issued. It contains provisions regarding cybersecurity and the possibility of creating a self-regulatory organisation. There are also disclosure requirements. It also directs the Federal Energy Regulatory Commission (FERC) to examine the energy implications of cryptocurrency.
Nevertheless, the most important thing about aEUR”, and the thing that has skeptics the most worried about aEUR”, is the fact that the bill would define most cryptocurrency as commodities. This would be monitored by the Commodity Futures Trading Commission, (CFTC), and not securities, which would fall under the larger Securities and Exchange Commission, (SEC).
Gary Gensler, one of the most sharpest crypto critics, is the head of the SEC. He has stated that the crypto industry is “rife in fraud, scams, and abuse.” After the crypto crash, Gensler reorganized the SEC’s crypto enforcement unit and asked Congress for additional funding. He said that the team was still “out-personed”.
Senator Gillibrand however stated that it was sensible for the CFTC do the heavy lifting.
She stated that it would be inappropriate for SEC to regulate certain markets as they don’t function as securities. “Chair Gensler already stated that Bitcoin is a commodity. He understands that it is a form value in the same manner that gold is a value and oil is a value. It is therefore more appropriate to place it under the CFTC.”
Both senators believe that crypto will continue to thrive. Lummis purchased her first Bitcoin in 2013, and had more than $100,000 as of her most recent financial disclosure. She stated that this bill was designed to help find the “sweet spot” in regulation.
Lummis stated that “So people innovating in the space know the rules and people who eat the final products know that there are consumer protection elements.”
It is still far from becoming law. Lummis stated that the timing of a floor vote is still months away. Lummis has acknowledged that the bill could eventually be broken down into smaller pieces to pass the relevant committees.
Many technology and finance professionals believe that cryptocurrency is a purely speculation asset that has no real purpose.
A group of them wrote to Congress this month asking for help to “ensure that individuals in the U.S., elsewhere, are not left vulnerable to prey financial fraud and systemic economic risk in the name technological potential which doesn’t exist.”
Molly White, a software engineering professional, was one of the signatories. She runs the blog Web3 is Going Just Great which documents fraud and other catastrophes in the crypto world. She isn’t a fan.
She stated that it was exactly what the cryptocurrency industry wanted to see from regulators. However, there is only a limited set of regulations applicable to the industry.
Some people in the industry have responded positively to it so far. It was a significant step forward for the Crypto Council for Innovation, while the Blockchain Association called this a “milestone moment”.
White’s biggest problem with the legislation is that it gives most of its regulatory power to the CFTC and not the SEC.
White states that cryptocurrencies are not like traditional commodities such as wheat and oil, and therefore the CFTC should not be the primary regulator.
White stated that cryptocurrencies can be compared to securities as people put money in them in the hope of getting a return. “It’s a sign that someone is interested in something as an investment.
White stated that the CFTC was simply not equipped to handle the workload aEUR,” even though the bill allows for the CFTC’s to impose a fee to digital asset exchanges in order to fund its vast role.
She stated that CFTC would have to make a significant change in their resources in order to take on such a broad and complex set of issues. “And the SEC is simply more experienced in this area already.”
