The Biden era has begun. Looking at the regulatory trends of cryptocurrencies from the nominees of various regulatory agencies

Text | Nancy Edited | Tong Produced | PANews

After the impact and test of the Great Depression in the 1930s and the subprime mortgage crisis in 2008, the US regulatory system has formed an impenetrable wall in the process of continuous improvement. Looking at the history of international financial regulation, the United States is undoubtedly the vane of global financial regulation, and the same is true for cryptocurrencies with financial attributes.

From its silent birth to its development into a widely familiar alternative investment product, regulation is like a rider wielding a lasso, chasing after the "wild horse" of cryptocurrency. During this period, the US regulatory thinking has always played an important demonstration role and even become a model for other economies to follow.

As the U.S. government officially enters the Biden era, judging from the new leadership team nominated by financial regulatory agencies, the regulatory direction of the crypto market may have been set.

Federal Reserve Chairman Jerome Powell

According to US law and practice, the chairman of the Federal Reserve is usually nominated by the president and approved by Congress for a four-year term. Powell took office as chairman of the Federal Reserve in February 2018, which means his term will expire in February 2022.

Compared with his previous "disdainful" attitude, Powell's attitude has quietly changed. From "It is not the Fed's job to regulate cryptocurrencies such as Bitcoin" and "The cryptocurrency ecosystem does not have the ability to pose a threat to the US financial system", to "The Fed has a strong interest in Bitcoin", "Will consider including Bitcoin crashes in stress tests", "The process of evaluating Libra requires patience", and then to "Although the Fed will not launch digital currency soon, it has potential benefits", "The Fed is studying the risks of stablecoins", etc. Powell's change in his perception of crypto assets is driving the Fed's research on central bank digital currencies, stablecoins, Bitcoin, and Libra.

Interestingly, Powell was awarded the "Cryptocurrency Person of the Year" by Forbes. The reason is that in order to prevent the US economy from collapsing under the influence of the new coronavirus epidemic, Powell asked the Federal Reserve to purchase US Treasury bonds on a record scale, while also issuing up to $3 trillion in currency and almost doubling the central bank's balance sheet. This approach can indeed quickly alleviate the pain caused by the new coronavirus epidemic and the economic crisis, but the long-term pain may continue, and many investors who are highly skeptical of the Federal Reserve are beginning to seriously consider cryptocurrencies.

U.S. Treasury Secretary Janet Yellen

Janet Yellen, 75, has extensive experience in economic policies. She is the first female head of the Federal Reserve and the first female Treasury Secretary in U.S. history.

At the Senate hearing, Yellen expressed her views on many aspects of the U.S. fiscal and monetary policies. She believes that raising taxes is not a top priority for the Biden administration. At the same time, Yellen intends to help and supervise the Biden administration in implementing the $1.9 trillion stimulus plan after taking office.

At the hearing, Yellen also expressed her position on cryptocurrencies. "We need to consider the benefits of cryptocurrencies and other digital assets and their potential to improve the efficiency of the financial system. At the same time, we know that they may be used to finance terrorism, facilitate money laundering, and support nefarious activities that threaten U.S. national security interests and the integrity of the U.S. and international financial systems. We need to carefully study how to encourage their use for legitimate activities while reducing their use for malicious and illegal activities."

However, Yellen later further emphasized in a written testimony that “Bitcoin and other digital and cryptocurrencies are providing financial transactions around the world. Like many technological developments, this has brought potential benefits to the United States and our allies, but it has also provided opportunities for state and non-state actors seeking to circumvent the current financial system and undermine U.S. interests.”

After Yellen officially takes office, she will be responsible for regulating a series of proposed rules related to cryptocurrencies. Currently, the three main enforcement agencies of the Treasury Department that regulate digital currencies include the Financial Crimes Enforcement Network (FinCEN), the Internal Revenue Service (TIGTA), and the Office of the Comptroller of the Currency (OCC). FinCEN mainly focuses on money laundering, TIGTA focuses on tax issues, and the main regulatory content of the OCC is to legally link the use of cryptocurrencies with traditional banking business.

In fact, the Treasury Department has previously taken a tough stance on cryptocurrencies, and the department even held meetings to discuss a series of challenges facing the regulation of the digital asset industry. Recently, the Treasury Department also proposed that banks and trading platforms must report any cryptocurrency transactions involving unhosted wallets and exceeding $10,000 to the Financial Crimes Enforcement Network (FinCEN) within 15 days. At the same time, banks and cryptocurrency trading platforms must also keep records of any cryptocurrency transactions and counterparties of any customers exceeding $3,000 to verify their identities.

Currently, this proposal has been frozen by the Biden administration, and the proposal to freeze it will take effect within 60 days from the date of the White House memorandum, giving the crypto market a brief respite. However, judging from Yellen’s remarks, she will impose more regulations on cryptocurrencies as she officially takes office.

It is worth mentioning that stablecoins also fall under the supervision of the Treasury Department. Previously, the US President's Working Group on Financial Markets, which was composed of the heads of the Treasury Department, the Commodity Futures Trading Commission, the Securities and Exchange Commission, and the Federal Reserve, also pointed out that the use of stablecoins should be to "effectively manage risks and maintain the stability of the domestic and international financial and monetary systems in the United States." In addition to curbing illegal capital flows, stablecoin providers should maintain sufficient cash reserves. For stablecoins such as USDT, they may face a new round of "gambling."

SEC nominates Gary Gensler as chairman

Gary Gensler, 63, is considered the "Wall Street Nemesis". Especially when he was the Chairman of the CFTC during the Obama administration, Gary Gensler was known for his radical and aggressive regulatory style. After the outbreak of the 2008 financial crisis, Gary Gensler, despite opposition, made drastic reforms to the derivatives regulatory measures that triggered the financial crisis. Regarding Gary Gensler's nomination, many people outside believed that he would be the most radical and most advocating regulatory chairman of the U.S. Securities and Exchange Commission (SEC).

Gary Gensler himself is also very familiar with the field of encryption. Previously, while teaching blockchain-related courses at the Massachusetts Institute of Technology (MIT), Gary Gensler served as co-director of MIT Fintech@CSAIL and senior advisor to the Media Lab Digital Currency Initiative.

Gary Gensler once said, "Most cryptocurrencies sold through ICOs should be considered securities. The U.S. SEC's classification will subject cryptocurrencies and exchanges to stricter scrutiny. There will be several major trends in crypto exchanges in the future. First, there will be a global integration of exchanges. There are currently more than 200 exchanges worldwide, and this number will be greatly reduced in the future, and many exchanges will be eliminated; secondly, some exchanges that provide token trading will be registered under the supervision of the SEC in the future. These exchanges will be registered as economic dealers under the regulatory policies of U.S. exchanges, and may be registered within the next 6-18 months."

Since 2017, the SEC has been increasing its supervision of ICOs, intending to bring them under the regulatory umbrella. Gary Gensler, who has a deep understanding of the widespread application of cryptocurrencies, will be directly related to the regulation of the definition of cryptocurrency securities and the development of industry compliance. In particular, the Bitcoin ETF, which has been delayed in passing, may be one step closer to becoming a reality.

Michael Barr, Director of the Office of the Comptroller of the Currency

Recently, there was news that former Ripple consultant Michael Barr may become the next director of the U.S. Office of the Comptroller of the Currency (OCC). Michael Barr is the dean of the Ford School of Public Policy at the University of Michigan. He worked in the Treasury Department of the Obama administration and participated in the drafting of the Dodd-Frank Act.

Although Michael Barr has not yet expressed his views on cryptocurrencies, he is keen to encourage innovation in the payment field as he joined the Ripple Labs Advisory Board in 2015. Michael Barr believes that the current global payment system is seriously outdated, and innovation in payment will help make the financial system safer, reduce costs, and improve access mechanisms and efficiency for consumers and businesses.

As an independent agency under the Treasury Department, the OCC's main regulatory content is to legally link the use of cryptocurrencies with traditional banking business. In September 2020, the OCC issued a stablecoin guide stating that commercial banks and federal savings associations chartered by the U.S. federal government can hold reserves for stablecoin issuers. This is the first time that the U.S. federal regulatory authorities have publicly supported stablecoin issuers.

The OCC also emphasized that the OCC has not yet addressed the issue of authorizing stablecoin transactions involving non-custodial wallets, only stablecoins that are pegged to a single fiat currency and backed 1:1. Banks must verify at least daily that their reserve account balances are always equal to or greater than the number of stablecoins issued.

CFTC Nominee Chris Brummer

The main responsibilities and functions of the U.S. Commodity Futures Trading Commission (CFTC) are to regulate the U.S. commodity futures, options and financial futures and options markets to protect market participants and the public from fraud, market manipulation and unfair operations related to commodity and financial futures and options, and to ensure the openness, competitiveness and financial reliability of the futures and options markets.

The CFTC has always been very clear about its attitude, and it has made the regulation of cryptocurrencies a priority. As early as 2015, the CFTC regarded cryptocurrencies as commodities like crude oil and brought them under its regulatory scope. In 2020, the CFTC has accelerated its regulatory pace, with seven monetary relief actions in fiscal year 2020 targeting companies engaged in illegal crypto activities. At the same time, the guidelines issued not long ago clearly restrict the rules for "futures commission merchants" (FCMs) to deposit customer virtual currencies, and intend to further study DeFi and cryptocurrency governance.

Chris Brummer, a Georgetown University law professor who is very familiar with cryptocurrencies, may be nominated by Biden as the chairman of the U.S. Commodity Futures Trading Commission (CFTC). As early as 2016, Chris Brummer was nominated by former President Obama as a CFTC commissioner, but the nomination ended before the Senate scheduled a confirmation hearing. When Biden won the election, Chris Brummer was added to the transition team.

Chris Brummer is considered to be a candidate who is as proficient in blockchain and cryptocurrency as Gary Gensler and Michael Barr. He has edited a book called "Legal, Regulatory and Monetary Perspectives on Cryptocurrency Assets". At the same time, Chris Brummer has testified in the US Congress on the issue of Libra, and published an article that details Libra and questioned the initial model of Libra, believing that it may cause other malicious situations. However, as the Libra white paper has been changed, Chris Brummer also said, "I will still try to remain optimistic."

In addition, Chris Brummer also pointed out that Congress needs to expand the SEC's power to manage cryptocurrencies as investment transactions. When talking about the price fluctuations of digital currencies, Chris Brummer said that there is currently a regulatory vacuum, which has extended to the digital currency spot market to a certain extent. Digital currencies are the product of investors chasing money and the product of insufficient disclosure.

Merrick Garland, Nominee for U.S. Attorney General

The United States Department of Justice is composed of the executive branch of the U.S. federal government, responsible for the enforcement of U.S. laws and judicial management. It is equivalent to the Ministry of Justice or the Ministry of the Interior in other countries, and its head enjoys cabinet status.

The Department of Justice is constantly strengthening its efforts to combat digital currency crimes. In addition to recruiting digital currency lawyers to combat cybercrime, it is also investigating cases of fundraising and money laundering through digital currencies. Not long ago, the Department of Justice also seized more than $1 billion worth of Bitcoin and other digital currencies related to the dark web "Silk Road", which is also the largest amount of cryptocurrency it has seized so far.

Compared with other candidates, Biden was slow to nominate the judiciary. Merrick Garland, a judge of the Washington, D.C. Circuit Court, was only recently formally nominated as Attorney General. In the eyes of the industry, Merrick Garland is a political neutral who "acts on the rule of law and principles", usually does not make preconceived judgments, is moderate, cautious in his words, and does not seek to be unconventional.

Although Merrick Garland has not yet expressed any views on cryptocurrencies, facing the heavy task of restoring the legitimacy and credibility of the judiciary, Merrick Garland may implement cryptocurrency regulation with a more cautious attitude.

Compared with former President Trump's critical attitude, although Biden has not expressed clear optimism about cryptocurrencies, his attitude towards encryption language is not friendly. As early as 1990, when he served as chairman of the Judiciary Committee, Biden proposed two bills against encryption language, the Comprehensive Anti-Terrorism Act and the Violent Crime Control Act. These two bills also made Hal Finney one of the inventors of PGP (Pretty Good Privacy) encryption technology. Hal Finney was an early assistant of Satoshi Nakamoto and the first person to receive Bitcoin transferred by Satoshi Nakamoto.

Of course, judging from the above nominees, we may see more constructive engagement between cryptocurrencies and regulators in the future, and the crypto market will become more compliant.