Biden administration's secret crypto strategy revealed: President intends to force issuers stablecoins to transfer control to the banks of the country.
In 2021, cryptocurrency advocates startedguess that the US government is plotting something against them. The decisions of the country's regulators confirmed their concern for the industry. And while the community insisted on the corruption and incompetence of the regulators, in reality the US was looking for ways to implement a cunning strategy to tame the industry, which, in their opinion, is a threat to the country's economy. And yes, perhaps right now the state is implementing a sophisticated plan, but not to destroy the cryptocurrency, but to tame it by transferring stablecoins under the control of large banks.
This is a very thoughtful strategy, as a result of which the growth of the crypto industry will be significantly slowed down.
Who is leading this strategy?
There is an opinion that it is SEC Chairman GaryGensler dictates the rules of US anti-cryptopolicy, but this is not entirely true. Treasury Secretary Janet Yellen, Senator Elizabeth Warren, and Fed officials are making major moves towards crypto regulation.
In fact, the Biden administration has no plansimpose a ban on stablecoins, but only wants to cut down "shadow" operations (Tether activities), and establish "friendly relations" with such companies as Circle and Paxos, under the auspices of the US banking system. And here the question arises: can the cryptosphere escape the control of the banks, whose system it previously intended to destroy.
Stablecoins: Key to Regulation of Cryptocurrencies
It took more than a decade for the US government to start taking cryptocurrencies seriously, and that happened thanks to stablecoins.
According to Coin Center CEO Jerry Brito, it was Facebook's announcement of a Libra stablecoin pegged to a basket of government currencies that was the turning point.
The Internet giant was among the first to think ofto the idea of issuing their own stablecoin. And although the first stablecoins appeared back in 2014, they were able to gain particular popularity precisely through the Facebook offer of a coin to its multibillion-dollar audience. However, during the announcement, the company not only introduced a new product to the market, but also challenged the authorities of the state. According to crypto-industry lawyer Preston Byrne, “If Facebook were to raise an army, it wouldn’t be much more hostile to the people of the United States.”
The U.S. reaction to Facebook's announcement all but wiped out the idea of creating Libra, but did nothing to affect the broader stablecoin market.
And all this is happening along with the fear of loss of sovereignty by the US Treasury, including pressure from Russia and China to lower the US dollar rate…
Although stablecoins are still far from mainstream, inin the cryptosphere, they are already hugely popular. USDT (Tether) and USDC (Circle) tokens are not only able to protect the market from volatility, but also allow traders to avoid fees that arise when withdrawing funds in traditional currencies, not to mention the absence of tax fees and legal regimes that clients face every time they interact with traditional banking institutions.
Today, the capitalization of the cryptocurrency marketis about $155 billion, and transactions with stablecoins account for about 2/3 of all transactions daily. In the future, the market plans only to grow, and this is confirmed by the statement of Circle, which claims that USDC in circulation will reach at least $194 billion next year - an amount corresponding to Greece's GDP.
Circle, led by Coinbase, is tryingfully comply with US regulatory policy. And despite the controversy and controversy regarding real reserves, the company managed to prove its case. The same can’t be said for Tether, which has faced more serious allegations regarding its superficial accounting practices and the presence of dollar backing of the stablecoin. As a result, the company had to pay more than $50 million in fines, but the existence of reserves has not been proven to this day.
Due to opacity, stablecoins have becomethe main target of the regulars. Back in November 2021, the presidential administration called on Congress to pass laws requiring stablecoin issuers to act as banks and limit their “association with commercial entities.” This is evidenced by the data from the Stablecoin Report.
The report also states that regulators canassign a stablecoin issuer the “systemically important” designation, created after the 2008 financial crisis to oversee institutions at increased risk of bankruptcy.
According to a member of the Yale Finance ProgramStephen Kelly’s stability, the $155 billion stablecoin economy is a drop in the bucket compared to the $5 trillion money market. Given these figures, we can conclude that stablecoins do not pose a real threat to the financial system and look far-fetched. However, there is no doubt that regulators see cryptocurrencies as a threat to the financial status quo and believe that it is possible to stop their development by regulating stablecoins.
The Biden administration's strategy is toslowing down the growth of the stablecoin market through its regulation. In particular, such regulation will make it possible to tax the industry. After all, in essence, stablecoins are a tool used by crypto traders to enter and exit positions, so new restrictions on stablecoins are likely to create friction for traders and make trading inconvenient or expensive.
Managed by banks
According to lawyers, the SEC does not have clear rulesto work with stablecoins, since this instrument is not a security. When comparing stablecoins to stocks, the purchase of the former is not accompanied by the goal of making a profit - this is one of the key factors in the "Howey test" for determining whether an asset is an investment contract. Since the value of stablecoins does not change, it is very difficult to prove that they are an investment.
According to Brito of Coin Center, transactions withstablecoins are more like transfers in payment systems in PayPal or Venmo. Thus, real US dollars are not involved in the transfers, and companies simply debit or credit users' accounts with their own funds. Currency sent via Venmo or a stablecoin serves as money, but is not considered an SEC-controlled investment.
Therefore, it would be more correct to transfer the regulationstablecoins to the Federal Reserve System, which treats the asset as bank deposits subject to its jurisdiction. So, according to Josh Mitts, professor of securities law at Columbia University, the Fed has more options than the SEC.
This is evidenced by the statement of the insider, the refusal to include Gensler's formulations in the report, providing a clear jurisdiction of the SEC.
Instead, the US authorities intend to introducecontrol of the stablecoin market through the Fed, the Office of the Comptroller of the Currency (OCC) and the Federal Insurance Deposit Corporation (FDIC). Note that both the Office of the Comptroller of the Currency (OCC) and the Federal Insurance Deposit Corporation have enormous power over the country's banks.
“There are many ways in which these bankingregulators could stifle cryptocurrencies if they move all these requirements out of the traditional banking space and into the crypto space,” says Mary Beth Buchanan, a former U.S. Attorney and now chief legal officer at forensics firm Merkle Science.
As a result, bank regulators intend toto achieve its goal in the crypto sphere by forcing stablecoins to join the traditional banking regime without giving crypto companies a place at the negotiating table.
“They’re going to just hand it over to the big banks,” says a former Wall Street executive who now heads a cryptocurrency company.
If the conspiracy to impose control on the industryimplemented, it may have a negative impact on the development of the industry. Recall that previously the FDIC, OCC worked on Operation Chokepoint, during which the agencies expanded their powers to punish payday lenders and firearms dealers. Now there are fears that the situation could repeat itself, only this time in the crypto industry.
Indeed, banks are already slowly usingyour power. Last week, a former CFTC commissioner suggested there was a “shadowy debanking of cryptocurrencies” when commenting on a tweet by protocol creator Uniswap breaking the news of the sudden closure of JP Morgan’s accounts.
Likely a shadow de-banking of crypto [email protected] or @USOCC bank examiners, with direction from the top. If the examiner told a bank that a certain customer is too risky and the bank ended that relationship, the bank is contractually prevented from telling that customer why
— Brian Quintenz (@BrianQuintenz) January 23, 2022
Thus, market capturing assumptionsstablecoins can become a reality. For example, Barclays argues that a "hybrid" stablecoin management approach, where accounts are managed by licensed financial service providers, would be better for the industry.
Can the conspiracy against stablecoins be stopped?
If Sailor and other market participants are right, thenright now, the country’s regulators are pursuing a strategy to regulate stablecoins through traditional banking institutions. It is quite possible that Circle and Paxos will soon be included in JP Morgan and Bank of America as subsidiaries that have the money and documents to operate in a tightly regulated space.
But the situation will not necessarily develop inin such a vein. Last year, the cryptosphere gained allies in Congress. In addition, the last couple of years have seen the rise of algorithmic stablecoins without a centralized corporate issuer. It is possible that these stablecoins will be able to bypass the game of regulators with the crypto industry.
For now, the Biden administration seems tois determined to advance its plan to tame the crypto industry by transferring control of stablecoins to banking institutions. And the banks seem to be ready to participate in this conspiracy, as evidenced by the efforts to create a consortium whose members will be able to issue their own stablecoins.