In January 2009, Satoshi Nakamoto mined the first Bitcoin (BTC) block. Back then, not a lot of people cared or heard about Bitcoin or Cryptocurrency. It was called magic internet money and was described as a fad. People did not know that the cryptocurrency market capitalization will soon be worth billions and even trillions of dollars.
The early believers and adopters were able to create wealth and inspired others to join the world of digital assets. The cryptocurrency boom was loud enough to put digital assets in the crosshairs of regulators. Crypto’s rise prompted the Whitehouse to release an article regarding a roadmap to mitigate risk from cryptocurrencies.
There was a Prior Executive Order
This is not the first time that the executive branch called for regulations on cryptocurrency and digital assets. In March 2022, the president signed an executive order (EO) that laid down the groundwork on how to approach the new asset class.
In a nutshell, the EO gave directions to relevant government agencies on how to address digital assets. It tasked the Treasury Department to recommend policies and safeguards against risk in cryptocurrency and digital asset investments. At the same time, it is interesting to note that the Department of Commerce is assigned to ensure U.S. competitiveness in leveraging digital assets
Entities are Circumventing Regulations for Cryptocurrencies and Digital Assets
The government has been trying to develop a groundwork to further develop cryptocurrency and the digital asset class while trying to mitigate the risks involved. While this new technology promises faster and more secure transactions, bad actors are trying to use it for their benefit. Some crypto companies are misleading customers and at times commit outright fraud.
Cybersecurity is also a concern since several digital assets are worth a lot of money which makes them a target for hackers. The Whitehouse is also concerned that these assets can be used by opposing states to fund their programs that can affect national security. For example, North Korea’s Lazarus is responsible for major cryptocurrency hacks in Japan.
The risk associated with digital assets and cryptocurrencies has prompted the Whitehouse to task regulatory agencies to ramp up enforcement and issue pertinent guidelines. On the 3rd of January this year, several government agencies which include the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), issued a joint statement regarding Cryptocurrency’s risk to banks. The three-page statement simply says that risk that cannot be controlled should not be allowed into the banking system.
Congress is Being Asked to Step Up in Regulating Cryptocurrency
The Executive Branch is asking Congress to give more powers to regulatory agencies in the name of protecting customers. The Legislative Branch is also being asked to require crypto companies more transparent with investors about financial and environmental risks. The environmental risk part is an apparent jab at Proof-of-Work (PoW) cryptocurrencies like Bitcoin.
Congress is also being asked to reduce the risks posed by cryptocurrencies to the financial system by following the recommendations of the Financial Stability Oversight Council’s recent report, particularly regarding stablecoins.
The Executive Office is also asking congress not to encourage the assimilation of cryptocurrency into traditional finance. It was specifically pointed out not to greenlight the inclusion of digital assets into pension funds. The Whitehouse is also saying that traditional finance’s limited exposure to digital assets prevented the 2022 crypto contagion from infecting the broader financial system.
Is the Whitehouse Justified in being Wary of Cryptocurrency?
There is no denying that 2022 was a tumultuous year for the cryptocurrency space. Big crypto exchanges and projects imploded one by one. Nobody will deny that there are some bad actors within the crypto community and they have to be rooted out. Nobody will contest that it is the government’s mandate to protect its people’s financial well-being. But is the government always right?
Crypto has its fair share of frauds and con artists, but is traditional finance immune from such problems? Wells Fargo, a big and well-known bank, has been embroiled in a scandal recently. The Fall of Enron, a Wall Street Darling, is considered to be one of the biggest frauds in modern history. As for security, traditional finance is not invincible to hacks and robbery.
Proof-of-Work Crypto Projects have always been regarded as bad for the environment due to their power demand. But what about the energy saved by not needing physical banks? Crypto users can conduct financial transactions without riding in any car just to withdraw or deposit money. Miners are also turning to renewable energy, which will make Bitcoin mining more sustainable and eco-friendly.
Protecting stakeholders is important, but blaming the cryptocurrency industry alone will simply stifle growth. Instead, it might be better to encourage financial and digital education to consumers. Any regulation to protect consumers should be done in consultation with everybody who is invested in the industry. Cryptocurrency is the future, whether the government likes it or not.
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