US Crypto Regulation Emerges from the Shadows

In today’s Money Morning…US legislation means paperwork for traditional finance middlemen…US crypto regulations and DeFi implications…the China crypto problem…and more…

A crafty US politician finally proposed a bona fide, fleshed-out piece of law to enact crypto regulations in the last 24 hours.

The legislation, called the ‘Digital Asset Market Structure and Investor Protection Act,’ appears to indicate that the ‘author’ — Representative Don Beyer (Democrat Virginia) — actually understands how crypto works.

I use quotation marks around author, because everyone knows lawmakers in the US outsource the writing of laws to a cabal of lawyers and donors, I mean, um, trusted third-party stakeholders or whatever.

Who’da thunk? The ‘Don’ Beyer’s two largest donors are a law firm and financial information provider.

US legislation means paperwork for traditional finance middlemen

Anyway, this is real-deal crypto regulation aimed at clawing back some control of the monetary system under the guise of ‘market stability’ and ‘investor protection’.

You can’t really call a piece of legislation the ‘Desperate Attempt to Protect the Jobs of Traditional Finance Middlemen Act,’ can you?

And it’s a far cry from Elizabeth Warren’s misguided ‘scam’ and ‘super-coder’ comments that I roasted last week.

Which is why this legislation is so significant. Having done a quick scan of the law, I’d say it’s not a categorically evil piece of legislation.

There are some elements that could protect crypto investors — but it comes with a sweeping raft of changes to how crypto would be handled by regulators.

Classification systems for cryptos, clearly defined jurisdictional boundaries, and lots of paperwork.

The traditional finance middlemen love paperwork.

Don’t worry, I’ll take care of this headache for you for a clip. You aren’t smart enough to handle it yourself.

It’s why brokers, hedge funds, corporate accountants, and clearing houses exist.

At a high-concept level, this legislation is trying to ‘civilise’ crypto and impose the now-ancient moral mores of legislation dating back to the Securities Exchange Act of 1934.

Crypto is the Wild West of finance, and it’s true, less savvy investors get caught up in scams. So I’ve got an aversion to crypto projects that involve the word ‘safe,’ ‘moon,’ or some kind of animal.

Scam protections aside, the way this legislation intersects with DeFi and stablecoins may be the true crux of the matter — with huge geopolitical implications.

US crypto legislation and DeFi implications

The most interesting bit of the bill is how it treats stablecoins.

These are cryptos that are redeemable for fiat, like Tether, Dai, and USDC.

These are critical elements of the decentralised finance (DeFi) infrastructure. A financial movement to create a free market for money, with loans, collateral, yield, and the like. A system that was broken during the GFC when central banks and governments decided to put savers’ cash in the bin and create a new rulebook.

Check this out…

The bill states:

Beginning on the date of the enactment of this section, no person may issue, use, or permit to be used a digital asset fiat-based stablecoin that is not approved by the Secretary of the Treasury under subsection.

Which CoinDesk explains:

In other words, the bill appears to give the Treasury Department the ability to restrict trading of any and all stablecoins. An issuer would have to apply, and the department would consult with the Fed, the SEC, CFTC and possibly foreign central banks or financial regulators before it decides whether to approve the proposal.

The bill also explicitly prohibits Treasury from grandfathering any stablecoins into its new regime, instead saying all existing stablecoins must apply for permission to continue operations.

Hmm, Treasury regulated stablecoins, you say?

Maybe it works out, maybe it kills the whole system.

I think this clause of the law is designed to give the bigwigs the option to move into stablecoins if it benefits them.

While also giving them the ability to at least try and crush any non-compliant stablecoins that threaten the current power structure.

It may paradoxically hurt the US dollar fiat reserve currency status in the long run if they botch the execution. You could expect more non-USD stablecoins to emerge in the competitive environment should the burden of paperwork get too intense.

The problem is, though, that the US may be missing out on what I think is their last real chance to outmanoeuvre China’s ambitions to become the world’s biggest power.

Smart US legislation and the China crypto problem

The Chinese bitcoin mining exodus continues to gather steam.

At play are electricity prices, how ‘clean’ that electricity is, and regulatory factors.

If the US political elite were smart, they would swoop up crypto mining market share and harness the power of DeFi with gentle laissez-faire legislation, mostly focused on tax treatment issues and pushing out CBDCs like the digital yuan (China’s new digital currency).

It’s unlikely they’ll wise up anytime soon, but it’s a future well worth pondering.

As for practical steps you can take — check out Greg Canavan and Ryan Dinse’s five-part strategy on how to play this new money game.

Regards,


Lachlann Tierney Signature

Lachlann Tierney,
For Money Morning

PS: Lachlann is also the Editorial Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.


Lachlann Tierney is an Analyst for Money Morning and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. Recently he has been working with Ryan Dinse. Lachlann is involved in two publications:


Money Morning Australia