Earlier this week, the Financial Stability Oversight Council (FSOC) released its long-awaited report in response to US President Joe Biden's executive order on crypto, urging Congress to at least draw a line between safe and unsafe security. crypto concerns.
You're reading State of Crypto, the CoinDesk newsletter dedicated to the interface between cryptocurrency and government. Click here to sign up for future editions.
the narrator
The Financial Stability Oversight Council (FSOC) has finally released its long-awaited report on crypto regulation. Essentially, the FSOC said it believes federal agencies already have the authority they need to oversee large parts of the crypto industry. One area he has asked Congress to get involved in is where the limits of securities regulation should be. I mean, not much of it was really a surprise.
Why is it important?
Where is the issue between crypto security and crypto commodity in the US? exactly where does the authority of the Securities and Exchange Commission end and where does the authority of the Commodity Futures Trading Commission begin? Congress hasn't really tried to answer that question. Of course, there are bills that try to address this issue, such as the Senate Agriculture Committee's DCCPA. A closer look at the text, however, shows that it does not provide such a definition. This has left much of cryptography in a strange limbo.
the resolution
The FSOC released a 124-page document Monday. Here's a highlight from CoinDesk's Jesse Hamilton.
Let's remind that the board includes Treasury Secretary Janet Yellen, Federal Reserve Board Chairman Jerome Powell, Currency Comptroller Michael Hsu, Consumer Financial Protection Bureau Director Rohit Chopra, Securities and Exchange Commission Chairman Gary Gensler von, Commodity Futures Trading Commission. . President Rustin Behnam, Federal Deposit Insurance Corporation Acting Chairman Martin Grunberg, National Credit Union Board Chairman Todd Harper and others.
The report itself broadly outlined what's in crypto today, the rules and regulations in place, some recent events and precedents we've seen, and a summary of how regulators view crypto as a threat to the United States and potentially beyond. financial system
“Certain characteristics of crypto asset companies have significantly increased volatility in the crypto asset ecosystem. Many crypto asset companies do not have basic risk controls in place to protect against risk or be over-leveraged. "Crypto asset prices today appear to be driven largely by speculation rather than fundamental use cases, and prices have repeatedly fallen significantly and are widespread," the report said.
The report also looked at the number of companies offering services in the crypto ecosystem that are advertised as being regulated. They are not lying, but the report is alarming because it usually means they are seen as money transmitters.
FSOC is concerned that money transfer company executives are not focusing on money laundering controls, customer protection, and financial stability issues.
In particular, the report notes that there are problems with the cryptocurrency spot market. In fact, there is no federal regulatory or market framework. Additionally, there is no real international framework to allow different entities to engage in regulatory arbitration.
Another concern seems to be against FTX (and I now believe CME), which suggests that some platforms want direct access to their markets for retail clients, which in turn raises questions about sustainability.
Bottom line: Financial stability is (obviously) a major concern in how crypto interacts with the world, be it through stablecoin payments, banking, signed tangible assets, cryptocurrency products, investments, or even this general crypto idea. and crypto tools can be used to facilitate, replace or even enhance some of the more traditional financial activities taking place there.
And then there are the hacks and crashes. A fair amount of the report focuses on the fact that most cryptos are based on speculative trading, but are prone to frequent hacks (at the time of this writing, the last hack was around 3:00 p.m.) and other issues.
“Basic economic use cases do not currently anchor the prices of many crypto assets. Rather than reflecting cash flow analysis, crypto asset prices may reflect the likelihood of economic growth in future uses, as some industry commentators have noted, economic uses of blockchain technologies are offset by the likelihood that they will not be material, the report said.
Of course, the appearance of (suspected) fraudsters also plays a big role.
This means that recommendations are important here. The first two are correct. regulators have to deal with crypto risks, how to deal with other risks, continue to enforce rules, etc.
Recommendations three, five, and six call on Congress to act.
"The panel recommends that Congress enact legislation that gives federal financial regulators express authority to regulate the non-securities crypto-asset market," reads the report's third recommendation. "The board recommends that this regulator does not interfere with or undermine the existing powers of market regulators."
Five proposals call for stablecoin legislation, six allow regulators to coordinate or even ignore regulation of branches and subsidiaries (when those branches are subject to a state regulator, such as a federal regulator).
Other recommendations include closer coordination between different regulators, from state to state or with different types of regulators, and for federal agencies to continually build and revise their crypto knowledge as they monitor and authorize different entities.
It also calls for a "coordinated approach to analyze, monitor, control and regulate data and crypto-asset activities in government." The Board recommends that member agencies use data collection powers to facilitate financial risk assessment of crypto assets as part of data sharing and coordination efforts among members.
The other thing that's really interesting is that we anticipated Monday's report with the New York Fed releasing a research paper the same day that outlined some of the concerns about stable metals. Specifically, he said that even so-called stablecoins like USDC could pose a threat to the broader financial sector if dangerous stablecoins became safe havens for people backed by runaway wealth projects.
changing of the guard
© CoinDesk Keys provided: (name)=candidate, (ron.)=rumor, (act.)=active, (include)=active (no replacement intended)AFTER
- Italy did not review the 73 crypto companies it approved this year . What the country's tax officials have failed to do is investigate these companies or see if they have an office in the country. Sandali Handagama returns to the suspicious situation.
- ( Unchained Podcast ) I don't usually share things I'm passionate about, but I had a nice conversation with Laura Sheen about CFTC v. on her Unchained podcast.
- ( Wall Street Journal ) I'm not very good at economics, but it's worth noting. freight plans to reduce demand.
If you have ideas or questions about what I should be doing next week, or any other feedback you'd like to share, please email me.
You can also join the Telegram group chat.
See you next week!