The biggest "black swan" in the cryptocurrency world: Is the new U.S. government hostile to cryptocurrencies after Yellen takes office?

Wu said author | Colin Wu

Editor of this issue | Wu Talks about Blockchain

On January 25, the U.S. Senate approved the nomination of Janet Yellen as the 78th U.S. Treasury Secretary, making her the first female Treasury Secretary in 232 years. On January 22, influenced by her speech, cryptocurrencies experienced their first plunge in recent weeks, with ETH prices falling to nearly $1,050 and Bitcoin falling below $30,000, but soon began to rebound. On the 26th, cryptocurrencies fell overall, and Ethereum fell again by nearly 5%.

The direct cause of the bull market in 2020, in addition to the positive impact of the halving, the opening of the floodgates due to the epidemic, and the rise of DeFi, is that traditional American institutions have recognized the value of Bitcoin and continued to buy mainstream cryptocurrencies such as Bitcoin and Ethereum and Bitcoin mining machines. The premise of these continued purchases also comes from the relatively open and positive attitude of the US regulatory authorities towards the industry in the past few years.

Compliance agencies are different from retail investors. They are wary of every move of the US government. The SEC punished Ripple, and major exchanges directly removed it from the market, and the price of Ripple plummeted. The US government's influence is unprecedented due to its exemplary regulation in the field of cryptocurrency and its long-arm jurisdiction overseas.

It is generally recognized in the industry that the attitude of the US government is the biggest "black swan" in the cryptocurrency industry. Therefore, the Treasury Secretary's speech at the hearing directly led to a sharp drop in the price of the currency.

We have compiled relevant information for your reference on the attitude of the Biden administration and the leaders of the three important positions he has appointed (and will appoint) towards cryptocurrencies and how they will develop in the future.

Information 1: The Biden administration has frozen the former Treasury Secretary's proposal to verify the identity of crypto wallets. Under the proposed rules, users of cryptocurrency exchanges who transfer their holdings to private or self-hosted wallets will need to provide detailed personal information for transactions over $3,000. These exchanges must also report transactions worth more than $10,000 to the Financial Crimes Enforcement Network, or FinCEN.

A 15-day public comment period was initially proposed for the rule, but that period was extended after major U.S. crypto companies, led by Coinbase, strongly opposed it. Critics say the rule threatens the privacy rights of individuals and innovation of institutions in the cryptocurrency industry.

The freeze does not mean that the Biden administration has stopped this regulation. It has only suspended all the latest regulations of the Trump administration. Please see Information 2 for details.

Information 2: Janet Yellen, the Treasury Secretary chosen by Biden, is an economist who has a relatively negative attitude towards cryptocurrencies. In the latest hearing, she said: I think that at least in the sense of transactions, many cryptocurrencies are mainly used for illegal financing; I want to study ways to reduce their use and ensure that money laundering does not occur through these channels.

Just last week, the president of the European Central Bank also said that Bitcoin has been used for some "totally reprehensible money laundering activities." Yellen once served as the chairman of the Federal Reserve. Because cryptocurrencies are inherently antagonistic to Keynesianism, central bank managers mostly have a negative attitude towards cryptocurrencies such as Bitcoin.

Unfortunately, the proposal in Information 1 is under the jurisdiction of the Ministry of Finance, and Yellen is likely to approve this decision later, thus sending a relatively pessimistic signal to the industry. It should also be noted that stablecoins are also under the jurisdiction of the Ministry of Finance, which may not be good news for USDT, which has relatively poor compliance.

Information 3: Biden appointed Gary Gensler as the new chairman of the U.S. Securities and Exchange Commission (SEC). The SEC mainly governs ICO-related securities activities. The industry considers this appointment to be good news. Due to his in-depth understanding of the cryptocurrency industry, he even taught blockchain and cryptocurrency at MIT. It is believed that the approval of Bitcoin ETF and other delayed approvals may be approved by him.

Information 4: Chris Brummer, a law professor at Georgetown University, will be the next chairman of the Commodity Futures Trading Commission (CFTC). The CFTC is another agency in the United States that regulates cryptocurrencies. It was it that cracked down on BitMEX. However, the general public believes that the former chairman Heath Tarbert is relatively friendly to cryptocurrencies, and BitMEX is "seeking its own death."

Chris Brummer hasn’t commented much on cryptocurrencies, but he was harshly critical of Facebook’s Libra, arguing that its white paper had exaggerated language, false promises, and omitted important information that sellers needed before buying.

In summary, the Democrats will focus more on consumer protection and seek stronger regulation than the Republicans. This is definitely not good news for the world's leading exchanges, US exchanges, US dollar stablecoins, and centralized ICO projects.

But from another perspective, the Democratic Party will adopt a more active fiscal policy, which will not only make the deflationary properties of Bitcoin more prominent, but will also lead to hot money flowing into the cryptocurrency market, which may objectively push up the prices of mainstream cryptocurrencies. (Image from CNBC)