The Biden administration is preparing to release a government-wide strategy to regulate cryptocurrencies as early as February, with the market in the throes of a deep rout linked to uncertainty over the Federal Reserve’s fight against inflation.
According to an administration official, the forthcoming National Security Council (NSC) memorandum will task federal agencies to assess the risks and opportunities that crypto poses, and delve into the details of a central bank digital currency. The move will also review the impact of digital assets on financial stability, and normalizing regulations for crypto with other countries.
The action, first reported by Bloomberg News, comes as agencies across the government examine new rules for crypto. Last fall, the Biden administration released recommendations proposing that only banks be allowed to issue stablecoins.
Digital coins have been battered by the market’s risk aversion. At its weakest levels on Monday, Bitcoin (BTC-USD) was off 50% from an all-time high near $69,000, as cryptocurrencies got clobbered amidst investor angst over the Fed’s interest rate hikes, and Washington policymakers mulling regulation of the sector.
Senator Cynthia Lummis (R-WY), one of bitcoin’s most vocal advocates on Capitol Hill, is expected to introduce a bill on regulating crypto that aims to fully integrate digital assets into the financial system. Her legislation would give guidance on which assets belong in which asset class and offer up new rules on taxing crypto and protecting consumers.
Meanwhile, Senator Pat Toomey (R-PA), has put forth a set of guidelines he’s using to think about how to regulate stablecoins and crypto.
The U.S. Treasury Department is also likely to reveal more of its thinking soon 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.
The current sell off is a big test of regulation efforts and investor protection. Securities and Exchange Commission Chairman Gary Gensler has repeatedly warned there needs to be greater investor protection of crypto, often referring to it as the “wild west.”
Ethereum (ETH-USD), the second-largest cryptocurrency measured by market capitalization, is down some 53% from its last record, while Solana (SOL1-USD) has fallen some 64%.
Jaret Seiberg, an analyst at Cowen, said on Monday that the administration’s intervention is “symbolically significant as the White House would be acknowledging that crypto is becoming economically important.”
Seiberg added that it reinforces the idea that crypto is here to stay. “The White House would not issue such an order if it was not convinced that crypto will continue to grow and spread throughout the economy,” he added.
The executive order could offer the White House the opportunity to weigh in on a digital dollar, a framework for which the Fed unveiled just last week. The White House did not immediately respond to Yahoo Finance’s request for comment.
According to Seiberg, the order could offer cover for other parts of the government, like the Department of Commerce and Treasury, to weigh in on the need and uses for a digital dollar. It could also address the increasing use of crypto for illicit purposes, and tax evasion.
“We would expect this to include an extra emphasis on policing digital wallets and trading platforms as a way to ensure Know Your Customer rules are enforced,” the analyst added.
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