On a wintry February morning in 2018, in the heart of America’s political machine in Washington, lawmakers and regulators were busily debating Bitcoin.
Over the course of nearly two hours, they acknowledged that they had not anticipated Bitcoin’s rise in 2017, nor its impact on financial markets. This was a clear endorsement by the US Senate Committee on Banking, Housing and Urban Affairs and the chairmen of the Securities and Exchange Commission and the Commodity Futures Trading Commission. They were supposed to be in control, but lacked answers on what actions to take after bitcoin’s rise.
Furthermore, the committees had met a few years earlier, in late 2013, to discuss the same topic of virtual currencies, but that meeting had given them no foresight of what was to come. The 2018 hearing, held Feb. 6 in the white-marble-fronted Dirksen Senate Office Building, was intended to inform the committee whether it needed to act to give regulators more powers to control cryptocurrencies to better protect investors.
On the day of the hearing, Bitcoin’s market cap was approximately $115 billion. Four years earlier, at his previous hearing on the matter, the total value of bitcoin was only $5 billion. At its peak in 2017, Bitcoin’s market cap was $237 billion. Today it’s about $360 billion.
However, regulators in the US are still reluctant to take control of the burgeoning cryptocurrency industry.
The White House last week, after six months of discussions on “Consumer and Investor Protection; promoting financial stability; combating illegal financing; US Leadership in Global Financial System and Economic Competitiveness; financial inclusion; and responsible innovation”.
The risk to the US government’s cautious approach is that technology and financial markets are moving quickly
“Digital assets offer potential opportunities to bolster U.S. leadership in the global financial system and stay at the technological frontier,” the White House said. “But they also pose real risks, as evidenced by recent events in the crypto markets. The crash of a so-called “stablecoin” in May and the ensuing spate of bankruptcies wiped out over $600 billion in investor and consumer funds.”
The White House said it encourages regulators like the SEC and the CFTC to step up their efforts against digital asset fraud. But according to industry group Crypto Council for Innovation executive director Sheila Warren, the framework proposed by the White House appears to be just “kicking the can on the street.”
“We don’t see any clear recommendations. Those we’re seeing seem to have an outdated and unbalanced understanding of the technology,” Ms. Warren said.
SEC Chairman Gary Gensler recently reiterated that Bitcoin does not fall under the agency’s securities rules. He has been more bullish on the second largest cryptocurrency, Ether, but has failed to make any firm statements.
During the 2018 Senate committee hearing, Mr. Gensler’s predecessor, Jay Clayton, in his testimony acknowledged that his officials had to become familiar with cryptocurrencies “in a short amount of time” and that they lacked sufficient resources to adequately advance on such technological innovations and their impact on the financial markets. Mr Clayton said that creating a “new product and market [raises a] Ask market regulators whether our historical approach to regulating foreign exchange transactions is appropriate for these new markets.”
It seems that the question continues to be discussed with few concrete answers.
The risk with this approach is that technology and financial markets are evolving rapidly and, as we’ve seen with the rise of companies like Google, Facebook, Apple and Microsoft, regulators will struggle to catch up once they fall behind.
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While it is important not to stifle innovation, it is also important to ensure that another wave of companies too big to control will not materialize as Web3, metaverses and AI become irreplaceable aspects of our daily lives.
As Ohio Senator Sherrod Brown rasped during the 2018 hearing, he didn’t know “how many people imagined how quickly and widely the technology on which it is based would spread.” For most of us, it’s nothing short of remarkable.”
Even more worrying is that Wall Street’s entire approach to bitcoin and cryptocurrencies has been a mix of opportunism, contempt, and distrust.
Allowing large financial institutions to dominate another aspect of the financial system will only deprive consumers of even more power and create an environment for potential financial crises.
The advent of Bitcoin is a symptom of the benefits of technological advances in the internet age. The unique properties of the Bitcoin network, with its borderless, decentralized design, offer a vision for tackling a world where trust in institutions has evaporated.
Instead of seeing this big picture, the authorities get lost in the weeds of the case law.
Since the 2018 Senate committee hearing, recent developments confirm that American regulators and lawmakers still don’t really know how to respond to the changing technological landscape.
They keep cryptocurrencies at a distance. This only serves to show how powerless they feel and creates a vacuum for those with narrower interests to fill.
Published: Sep 23, 2022 4:00 am
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