Unlike 2022, a disastrous year for digital asset markets, 2023 was characterized by aggressive regulatory action and positive market developments.
The recent agreement between US regulators and Binance, the world's largest cryptocurrency exchange, is intended to improve trust, transparency and accountability across the market. Meanwhile, most global financial centers have introduced clear regulations for the crypto industry.
Despite this progress, the United States risks becoming an outlier if it does not establish new rules in 2024. Policymakers can choose from three possible paths to manage risks and opportunities in the crypto market: regulation, legislation, and designation .
Two years ago, US President Joe Biden took a big step toward providing regulatory clarity by issuing his โExecutive Order to Ensure the Responsible Development of Digital Assets.โ However, since then, legislative attempts have stalled and the United States has fallen behind other countries in regulating the sector despite virtually all digital assets being priced in dollars.
The irony is that US-led bodies such as the Financial Stability Board, the President's Task Force on Financial Markets and the Financial Stability Oversight Council, FSOC, have been at the forefront of global efforts to regulate the market. of cryptocurrencies. As chair of the FSOC, Treasury Secretary Janet Yellen also urged Congress to advance legislation to regulate dollar-denominated stablecoins. Federal Reserve Chairman Jerome Powell has echoed these calls.
These calls for legislation, amplified by global regulatory bodies, highlight the potential risks associated with cryptocurrencies. While some economists advocate drastic measures, such as allowing the industry to collapse or imposing strict rules, a preferable approach would be to leverage blockchain and other emerging technologies to ensure that financial services can meet market demand beyond conventional banking hours, a challenge that especially affects global payments. With almost all of the world's major banks, asset managers, fintechs and payment services companies having already developed digital asset strategies, it is time for US authorities to catch up and establish principled and neutral regulations from the technological point of view that promote competition in the financial sector. markets.
To this end, Congress should empower federal regulatory agencies to set rules for the market. This involves exploring central bank digital currencies despite opposition from politicians such as former President Donald Trump, the presumptive Republican Party nominee in November's presidential election. It also includes establishing regulations for digital wallets and streamlining state and federal banking and payment systems. These actions are crucial to avoid a possible fintech โconstitutional crisisโ and maintain the United States' competitive advantage.
The US Treasury Department has also emphasized the need to take decisive action. In November, Undersecretary Wally Adeyemo called on Congress to address the risks posed by illicit cryptocurrency-funded activities, pointing to the opacity of certain crypto products and the lack of regulatory oversight. These products are, at best, financial alchemy; at worst, they are financial fentanyl.
The absence of a US regulatory framework for dollar-referenced stablecoins (increasingly authorized in jurisdictions such as the United Arab Emirates, Singapore and Hong Kong) represents a threat to US interests. This loophole could incentivize the creation of products that exploit trust in the dollar while circumventing US regulations, potentially becoming a haven for illicit actors.
At a minimum, the United States should ensure that foreign issuers of dollar-referenced stablecoins comply with the Bank Secrecy Act, anti-money laundering and anti-terrorism laws, and sanctions regimes. Otherwise, digital dollars could undermine international security, rather than combat the technological risks associated with dollar primacy.
But before the United States designates crypto companies or technologies as threats, it must establish new rules. While there is already precedent for labeling open source technologies as national security risks, major token issuers or exchanges have not yet been classified as systemically important financial institutions, which would consider them too big to fail. Instead of allowing crypto activities offshore or near it to proliferate unchecked or allowing other countries to set the standards for a market that is as intrinsically American as the Internet was, American policymakers should look to the year 2024 as a decisive moment.
The stablecoin bill introduced by the House Financial Services Committee in July 2023 has generated significant political momentum. Bipartisan Congressional passage of this bill would offer the best legislative opportunity to address the rise of cryptocurrency counterfeiting. Furthermore, it could be the United States' last chance to maintain its dominance in digital asset markets.
Making progress will undoubtedly be difficult during a contentious presidential election campaign. But advancing digital asset policy is crucial to ensuring that the United States remains a rule-maker rather than a rule-adopter. This is particularly critical now, given that the European Union's Markets for Crypto Assets, or MiCA, framework is set to come into effect later this year, potentially causing a transatlantic gap in digital asset regulation.
To avoid such an outcome, the US policy agenda for digital assets this year must go beyond regulation, legislation and designation, and focus on promoting global regulatory harmonization. But these efforts are destined to fail without regulatory clarity and American leadership in the cryptocurrency market.
Dante Alighieri Disparte is Chief Strategy Officer and Global Policy Director at Circle.ยฉ Project Syndicate 2024www.project-syndicate.org
