The Biden administration shared some new thoughts about cryptocurrency Monday — proposing new legislation to regulate stablecoins.
In a report by the President’s Working Group on Financial Markets, Treasury Secretary Janet Yellen says of stablecoins that “the absence of appropriate oversight presents risks to users and the broader [cryptocurrency] system.” The report goes on to propose specific new regulatory legislation that would in effect bring stablecoins into the same regulatory environment that banks today operate in.
Stablecoins are a unique type of cryptocurrency whose value is tied to the U.S. dollar. So where Bitcoin and Ethereum rise and fall by the day and even hour, stablecoins hold steady just like the value of a dollar.
While stablecoins most commonly are used by advanced crypto traders as a means to trade crypto on an exchange, experts say these types of cryptos hold the most potential for future use by everyday consumers to buy things. And it is this very potential for increased use by more Americans that has drawn the attention of federal authorities such as Securities and Exchange Commission (SEC) Chairman Gary Gensler, Federal Reserve Chairman Jerome Powell, and Yellen, among others.
Cryptocurrency is still in its relative infancy as an asset class, so any new regulation has potential to make a big impact on investors’ portfolios. Here’s more information about what’s in the report released this week, and what investors should make of it.
What New Crypto Regulation Is Being Proposed?
The report effectively proposes to classify stablecoin issuers as banks, which would subject them to new rules designed to protect people who trade and use stablecoins. The report highlights three specific proposals for new legislation:
- Stablecoin issuers should be required to be insured as depository institutions
- Stablecoin issuers and platforms should be subject to federal oversight, and required to meet appropriate risk-management standards
- Stablecoin issuers should be required to comply with restrictions on commercial entity affiliation and to promote interoperability among stablecoins
The report acknowledges that stablecoins have potential for future innovation to expand point-of-sale payment options for American consumers, even while highlighting the need for new regulation. “Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter,” Yellen said in the report.
While the proposed legislation would require action by Congress, the report says U.S. financial oversight agencies such as the SEC and Commodity Futures Trading Commission (CFTC) will take action to address concerns as they arise and fall within their respective jurisdictions even without new legislation.
What Does the Report Mean for Crypto Investors?
There are reasons cryptocurrency investors should welcome new regulation and oversight like the proposed legislation outlined in the report.
“As much as I like the decentralization and the lack of government [involvement], I am glad that they are paying attention because unfortunately with cryptocurrency, there are a lot of scams,” said Kiana Danial, author of “Cryptocurrency Investing for Dummies,” in a July interview with NextAdvisor.
While there probably aren’t any immediate changes crypto investors should make based on the contents of the report released this week, it’s a good reminder that policy makers are paying attention.
The fundamentals of cryptocurrency investing remain the same. Stablecoins were the focus of the report, but experts say investors should stick to the big two cryptocurrencies: Bitcoin and Ethereum. They have a longer track record of increasing in value, even while they remain highly volatile with price fluctuations by the day and hour.
You should also make sure cryptocurrency investments don’t get in the way of other financial priorities such as saving for emergencies, paying off high-interest debt, and saving for retirement. Make sure you don’t invest more than you’d be OK losing — or not more than 5% of your total portfolio, experts say.
As for where you buy and trade crypto, it’s wise to choose a mainstream, high-volume cryptocurrency exchange — like Coinbase or Gemini — that proactively complies with evolving federal and state regulators.