Bitcoin (BTC), Ethereum (ETH-USD), and other cryptocurrencies continued to growl into 2022 in a bear market after partying to new highs last fall.
According to one market strategist, regulation could continue to put pressure on cryptocurrencies.
“Regulation is still the biggest overhang in the markets for crypto and blockchain,” Jeffrey Wang, head of Americas for the Amber Group, said on Yahoo Finance Live (video above).
However, Wang is encouraged that the Securities and Exchange Commission (SEC) is pushing ahead with more clear guidelines on what will be allowed.
“We welcome the regulation,” he said. “We welcome the guidelines so everyone can be on a clear playing field.”
Regulations come as crypto traders remain jittery over the Federal Reserve scaling back stimulus and raising interest rates. Traders are worried about what will happen in the equities markets as rates rise and stimulus dries up.
Wang is expecting more regulation, particularly on stablecoins, in 2022.
“I think we’ll have more retail investors learning about stablecoins, understanding how they work, trading them, understanding that you can generate more yield from a stablecoin than you can in fiat cash — and I think that’s the reason it will be more regulated, and I welcome it,” Wang said.
'That means liquidity and disclosure requirements'
Last fall, the President’s Working Group on Financial Markets recommended that stablecoins only be issued by banks and tasked Congress with coming up with a new framework for regulating stablecoins.
At the same time, the group instructed regulators to act within their existing authorities to regulate stablecoins. Some analysts have said this leaves the door open for SEC Chair Gary Gensler to regulate stablecoins in the same fashion as money market funds.
Gensler has stated that he believes stablecoins and many facets of cryptocurrencies meet the test of being classified and regulated as securities.
“The SEC is going to try in 2022 to regulate stablecoins similar to Money Market Mutual Funds,” Cowen Analyst Jaret Seiberg said. “That means liquidity and disclosure requirements.”
Senate Banking Committee Chairman Sherrod Brown (D-OH) told Yahoo Finance last month he is open-minded to the possibility of only letting insured depository institutions (i.e. banks) issue stablecoin.
At a minimum, however, stablecoins should be brought within the banking system and regulated using current banking rules, and that stablecoin issuers should be transparent about their reserves, he said. Brown and his staff are currently considering proposing legislation on stablecoins in the New Year and consulting with regulators.
Proposed legislation
Senator Cynthia Lummis (R-WY), one of bitcoin’s most vocal advocates on Capitol Hill, will introduce a bill on regulating crypto that aims to fully integrate digital assets into the financial system.
Her bill is proposing the creation of a new crypto regulatory agency under the joint jurisdiction of the CFTC and SEC. It would also give guidance on which assets belong in which asset class and offer up new rules on taxing crypto and protecting consumers.
“For the basic functions of crypto, we will probably fit that into existing legislation and regulations,” Wang said. “Then the market will have to adapt and regulators will have to adapt on how to come up with more modern ways to look at things to really encompass the kind of innovation crypto has had.”
In the coming weeks, the Treasury is also likely to reveal more of its thinking on who will be considered a crypto broker under the infrastructure bill Congress passed last year. That will include how to report any capital gains or losses to the IRS.
Bitcoin on Monday broke below the 40,000 level intraday for the first time since September 2021 before bouncing back.
Jennifer is a senior reporter for Yahoo Finance.
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