Cryptocurrency has gone from niche interest to Super Bowl advertising, and Congress is now looking for ways to appropriately regulate these new assets.
Congressional committees have held hearings to understand stablecoins, the environmental impacts of crypto mining, and the government’s role in market oversight. Several lawmakers have introduced legislation to bring crypto assets into the regulatory fold, with sponsors arguing that their bills provide “responsible federal oversight of trading platforms and essential consumer protections.”
Unfortunately, many of the bills introduced so far are unnecessary at best and harmful at worst and fundamentally misunderstand crypto assets.
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Crypto assets are simply new digital versions of traditional assets, such as securities, commodities, and collectibles, which have been regulated for many decades. They are also exposed to similar risks and scams, but with potentially worse results due to the speed and anonymity of crypto transactions.
Fortunately, regulators already have broad power to address many of the concerns posed by crypto: among others, the Securities and Exchange Commission (SEC) can regulate the offering and sale of crypto securities; the Financial Crimes Enforcement Network can protect the financial system from the use of crypto assets for illicit purposes; and the Internal Revenue Service can ensure that everyone pays their fair share of tax on the income they earn from trading crypto assets.
The overarching problem is not that crypto assets are unregulated; it is that many crypto issuers and related businesses, like crypto exchanges, have essentially ignored the legal requirements.
For example, issuers of crypto assets that are securities must comply with all securities laws that all other securities issuers must comply with, including registration of their securities with the SEC, providing investors with quarterly and annual information and listing their assets only on the right markets. – regulated stock exchanges.
Failure to comply with these and other requirements has led to significant fraud and market abuse, with some crypto investors losing their life savings. Similarly, crypto investors have ignored legal requirements to report and pay tax on the income they derive from crypto transactions.
Even though crypto-assets resemble traditional assets, proponents argue that the existing financial regulatory framework does not match crypto, is outdated, and does not allow for necessary innovations. Congress should, they say, create a new regulatory structure for crypto assets and transactions.
There are two problems with this argument.
First, the regulatory framework that Congress has built over the past decades has proven, except for a very small number of loopholes, to be effective in mitigating risk. Since crypto assets are new versions of traditional assets and have the same risks, this regulatory framework can also work well when it comes to crypto assets.
Second, if Congress places crypto assets under alternative and objectively weaker regulatory regimes, regulatory arbitrage will occur. For example, if Congress grants crypto securities a full or partial exclusion from securities laws, traditional issuers will likely stop issuing securities and begin issuing crypto assets, circumventing the very protections Congress originally put in place. in place after the crash of 1929.
None of this is to say that Congress shouldn’t legislate. However, Congress must act carefully and deliberately when considering crypto legislation so that it does not inadvertently weaken existing statutory protections. Instead, he should focus on strengthening them.
There are three specific areas where Congress should act.
First, Congress needs to pass legislation to regulate the sale of crypto products like bitcoin BTCUSD,
Although several agencies can currently enforce prohibitions against fraud, market manipulation and unfair selling tactics in this market (known as the spot market), they cannot enact new regulations requiring, for example, that exchanges are protected against cyberattacks, to actively monitor their markets. for fraud, or for listing crypto assets for sale only if they are resistant to market manipulation.
The SEC already has the power to impose these common-sense protections on crypto securities markets, and Congress should ensure that they are equally applied to crypto commodities markets as well.
Second, with every bitcoin transaction estimated to produce 1,000 pounds of carbon emissions, Congress must work to reduce the environmental impacts of the technology underlying crypto assets. Among other solutions, it can incentivize the adoption of more energy-efficient blockchains by imposing listing standards on crypto exchanges. Stock exchanges are places where traders meet to buy and sell assets, and investors are less likely to trade unlisted assets.
Congress should require US securities and commodities exchanges to list only crypto assets that use power-efficient blockchains. As a result, issuers of crypto assets would use greener technologies to reach investors on exchanges, and dirtier technologies would fall out of favor.
Third, Congress must ensure that regulators have the basic capacity to oversee the $2 trillion crypto market. Regulators have had the power to regulate large swaths of the crypto markets for some time, but resource and personnel constraints have meant laws have gone unenforced and the market has grown massively unchecked. governmental. This, in turn, hurt investors.
To ensure that crypto markets cannot continue to operate in anarchy, Congress must ensure that regulators have the personnel and the technology to properly enforce the necessary regulations.
The crypto industry claims that these assets are revolutionary. In other words, they are not. Before legislating, Congress must understand that existing laws are sufficient to regulate many crypto assets, and it must not inadvertently weaken the existing powers of regulators in an effort to protect investors.
Todd Phillips is director of financial regulation and corporate governance and Alexandra Thornton is senior director of tax policy at the Center for American Progress. This op-ed was adapted from their new report, “Congress Must Not Provide Statutory Waivers for Crypto Assets.”
More Views on Crypto Regulation
Mark Hubert: Bitcoin fails first big test as a hedge against geopolitical uncertainty
Kenneth Rogoff: The Fed is both too cautious on digital dollars and too nonchalant on private cryptocurrencies
Andre Velasco: Private stablecoins should be regulated before they cause the next financial crisis
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Opinion: Congress may be wrong: Crypto should be regulated like other financial assets – CNET
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