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US crypto regulations take shape in Washington

By Daniel Tyson

20:09, 25 January 2022

Bitcoin in front of a gavel
Washington is considering several regulations laws about cryptocurrency - Photo: Shutterstock

As US lawmakers watched bitcoin’s value plummet over the last few days, debate on how to regulate cryptocurrency continues, with the White House planning on beginning a government-wide strategy next month and a Republican-backed comprehensive crypto bill postponed until the coin's value rebounds.

At 3:15 pm EDT (UTC-5) on Tuesday, bitcoin hovered around $36,800, a steep drop from its high of more than $60,000 at the start of January.

The mood on Capitol Hill is one of wait and see after bitcoin lost nearly half its value since last week. Congressional members and staffers are constantly checking the latest price of bitcoin, the most popular cryptocurrency, fearing more declines. The value, one Congressional source who wished to remain anonymous told Capital.com, will determine when cryptocurrency legislation is introduced or moves forward in both chambers.

Lawmakers taking it slow

“When bitcoin is selling at this level and is surrounded by so much uncertainty right now, it’s not a good idea to move ahead on any legislation that has such a huge unknown future that could impact millions of Americans’ finances,” the source said, adding elected officials are waiting to see what action, if any, the Federal Reserve takes on interest rates.

A handful of cryptocurrency bills are pigeonholed in Congressional committees with little chances of advancing anytime soon. These bills take a piecemeal approach to regulating crypto. 

However, an upcoming and much anticipated comprehensive crypto bill written by bitcoin evangelist Senator Cynthia Lummis, R-Wyoming, could restructure the nation’s approach to digital assets and cryptocurrency. The bill was originally scheduled to be introduced this month, but the senator might decide to postpone its introduction given the current cryptocurrency crisis, the source added.

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New regulatory body proposed

The legislation would create a new regulatory body, overseen by the Commodity Futures Trading Commission and the Securities and Exchange Commission, which governs cryptocurrencies, the staffer added. The bill would also regulate stablecoins, establish crypto tax laws, and create consumer protection, something Democrats demand.

When introduced, Lummis’ bill would be Congress’ first attempt at creating broad crypto rules and would have to pass through a Senate that’s relatively split on digital asset regulation, the source said.

“Passing the Senate will be difficult, if not impossible, if (the legislation) doesn’t have strong consumer protection. Without that, there will be scant support from Democrats, the White House, the FTC and other agencies, including the Fed,” the Congressional source said.

Lummis’ office didn’t return Capital.com’s calls.

Republicans firmly support cryptocurrency. Pat Toomey, R-Pennsylvania and Lummis are the only two senators who are invested in cryptocurrency. Both are members of the Senate Banking Committee, which oversees banking and coinage legislation.

Executive order

The Biden Administration is currently preparing an Executive Order related to a government-wide strategy to regulate the industry some time in February.

As part of the plan, the White House will order several federal agencies to evaluate risks and opportunities digital assets pose, with a report scheduled to be released in the fall of 2022.

The decision comes after high-ranking White House officials held multiple talks about how to handle digital assets and bitcoin.

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There is no comprehensive legal framework or regulation of digital assets or cryptocurrency exchanges under current US law.  

Last fall, the Biden administration released recommendations proposing that only banks can issue stablecoins.

Other agencies involved 

The Federal Reserve, Treasury Department and other agencies are also gathering facts to write their own regulations on cryptocurrency and digital assets.

The Fed released a study last week about the possibility of it issuing cryptocurrency and seeking public comment on the idea. The study made it clear it would not act without congressional and White House support. 

At the Treasury Department officials are likely to outline their thinking soon on who is a crypto broker as required under the infrastructure law that went into effect last year. The outline will also include how to report any capital gains or losses to the Internal Revenue Service.

The SEC has long called for more regulations and rules governing digital assets and cryptocurrency. The SEC is currently working on rules, said Commission chair Gary Gensler, who has repeatedly testified before Congress that any SEC rules and regulations will include greater investor protection, often describing the current environment as the “wild west.”

The steep decline in bitcoin is a “big test” for regulators efforts and investor protection, a crypto industry lobbyist told Capital.com on condition of anonymity.

Industry watching events

The lobbyist said the cryptocurrency industry is closely watching events in Washington unfold from afar. The industry is confident prices will rebound but is experiencing a bit of discomfort in how lawmakers will view the plummet.

The industry is examining any statement or moves by senators who have publicly stated their opposition to the current cryptocurrency climate and calling for tougher, tighter rules.

The lobbyist, who spoke on background, said cryptocurrency companies will continue to lobby for industry acceptable regulations. However, don’t expect leaders to be appearing before committees testifying about the value of owning cryptocurrency until the prices return to the $40,000 to $60,000 per coin.

The crash has dashed any hopes of cryptocurrency being part of any large, institutional retirement portfolio, the first two sources and one other source confirmed..

“Hell, no, that’s not going to happen for a long, long time. Washington actually does have a long memory,” said the third source. 

Read more: Is crypto crash over? Market debates direction as BTC settles near k

Read more: Crypto news: BTC sinks to K as the downfall continues

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