November 06, 2022
The topic of regulation of cryptocurrencies and digital assets and the exchanges and platforms where they’re used is once again in the news. By now, most people know that the top draw of digital transactions is their “unregulated” and “decentralized” nature. Some experts argue that the popularity of cryptocurrencies is to no small degree the result of a lack of government oversight.
No huge surprise that President Joe Biden issued an executive order in March designed to start the process of determining the benefits and risks related to cryptocurrencies and decentralized financial systems.
Finally, the Biden Administration has come back to the public with the results of that order and the beginnings of a regulation framework designed to prevent and legally address cryptocurrency and digital-asset fraud and make transactions that have no borders faster, easier and safer.
President Biden asked federal agencies to research a wide range of cryptocurrency topics, including the impact of this currency on U.S.:
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He also wanted agencies to address how they might deal in the future with related consumer protection, investor protection, illegal transactions, fraud and security problems.
As noted by the Federal Trade Commission, the digital-assets sector has experienced a higher-than-expected number of crimes, which are commonly referred to as illicit financial transactions and flows across borders. Americans and others have lost more than $1 billion in just under two years. In February 2022, the U.S. seized $3.6 billion Bitcoin related to the 2016 Bitfinex exchange hack alone.
The Securities and Exchange Commission (SEC) also issued charges against multiple criminals for defrauding investors around the globe of more than $300 million in a retail investment Ponzi scheme that included pyramid scheme elements.
With cryptocurrency exchanges and non-fungible-token (NFT) platforms in mind, President Biden may soon ask Congress to make amendments to a wide range of far-reaching laws, including anti-tip-off statutes, the Bank Secrecy Act and digital money transmission laws. He wants to stop the spread of unlicensed money and give the Department of Justice more jurisdictional leeway to make it easier for that agency to prosecute criminals no matter where they live. President Biden specifically asked the U.S. Treasury to generate reports by 2023 of risk assessments about decentralized finance and NFTs. He also asked the Treasury to address the instability of so-called stablecoins and evaluate associated risks.
Several digital currencies exist in U.S. dollars that investors have commonly considered “stable” pricewise. Yet, the May 2022 collapse of TerraUSD, a digital U.S. dollar backed by respected financial institutions, proved that decentralized currencies are simply not managed or regulated enough to remain stable.
So many investors started to lose money that they rapidly pulled out of decentralized systems, which resulted in essentially what most experts are describing as a digital bank run. Approximately $600 billion was lost by the time the collapse ended, and the entire event started to destabilize non-digital financial systems. It completely ruined many people’s lives and prevented them from being able to pay cost-of-living expenses and debts.
With all of the above in mind, the framework discusses the transition away from decentralized systems to a Central Bank Digital Currency (CBDC) and systems, which would mean federally governed and regulated digital cash and transactions. For now, the President has asked the Federal Reserve to continue to evaluate the idea of the U.S. dollar represented digitally while regulated and backed by the federal government via the central bank. With this type of digital currency, the Federal Reserve would handle all liabilities.
At this point, financial experts can only guess. It’s likely that U.S. government will eventually outlaw:
That said, regulatory agencies like the Commodity Futures Trading Commission and the SEC haven’t been instructed yet to perform any disruptive actions.
Instead, the recent announcement acts more as a warning to everyone who’s investing in and making money from this industry that the government is preparing to bring the hammer down soon on all types of cryptocurrency transactions that wouldn’t normally be permitted with other forms of centrally controlled currencies. It’s also a forewarning of future cessation of all decentralized cryptocurrency transactions within the United States.
Meld Valuation can help you better deal with financial reporting and taxes. Many people now wonder how they can appropriately answer questions about the value of their digital assets for portfolio reporting, inheritance, and estate planning.
For more details about this topic or our crypto valuation services, contact a member of our team today.
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