Cryptocurrency: Regulators Busy With Stablecoin CBDC Tax Insurance and Enforcement Team

[grarpamp]

While adoption of distributed privacy capable crypto,
development of cross coin DEX, etc all continue
apace according to plan with your help since day one.
After all, crypto was created to route around the
problems of GovBank.


DOJ Announces Launch Of National Crypto Enforcement Team As FDIC Mulls
Insuring Stablecoins

https://cointelegraph.com/news/us-justice-dept-announces-launch-of-national-crypto-enforcement-team
https://www.coindesk.com/policy/2021/10/06/us-fdic-said-to-be-studying-deposit-insurance-for-stablecoins/
https://bitcoinmagazine.com/business/federal-reserve-chair-jerome-powell-u-s-has-no-plans-to-ban-bitcoin-and-crypto
https://decrypt.co/82265/billionaire-investor-chamath-palihapitiya-bitcoin-has-effectively-replaced-gold

One of the catalysts behind crypto's impressive surge in the past week
emerged last Friday, when the WSJ reported that the Biden admin was
seeking to regulate stablecoin issuers as banks and was "considering
ways to impose bank-like regulation on the cryptocurrency companies
that issue stablecoins, including prodding the firms to register as
banks." Coming at the same time as both Jerome Powell and Gary Gensler
said they did not seek to bank crypto, the news was confirmation that
the regulatory apparatus was seeking to integrate the crypto space
within the confines of the state - especially since taxes on cryptos
are expected to generate tens of billions in government revenues to
the Democrats "deficit neutral" multi-trillion spending plan. In
short, this was very good news for digital tokens as it eliminated the
worst possible outcome: a China-style terminal crackdown on the
sector.

Today, we got more good news when Cointelegraph reported that an
official from the Office of the Attorney General said the United
States government is going to take a more active role in enforcement
action against actors using cryptocurrencies for money laundering and
other cybercrimes. In effect, the DOJ is already policing cryptos as
if they were securities, providing an implicit security to investors
even though the formal regulatory treatment of cryptos remains
nebulous.

Speaking at the Aspen Institute Cyber Summit on Wednesday, Deputy
Attorney General Lisa Monaco said the Justice Department had launched
the National Cryptocurrency Enforcement Team, who aim is to target
platforms “that help criminals launder or hide their criminal
proceeds.” Monaco cited her office’s work against Darknet-based
Bitcoin (BTC) mixing service Helix in August but said the U.S.
government should be doing more.

“We want to strengthen our capacity to dismantle the financial
ecosystem that enables these criminal actors to flourish and — quite
frankly — to profit from what they’re doing,” said Monaco. “We’re
going to do that by drawing on our cyber experts and cyber prosecutors
and money-laundering experts.”

Monaco, who has often been a central figure in the U.S. government’s
response to major ransomware and cyberattacks involving cryptocurrency
payments, added that “cryptocurrency exchanges want to be the banks of
the future. We need to make sure that folks can have confidence when
they’re using these systems, and we need to make sure we’re poised to
root out abuse that can take hold on them.” She should know: she was
part of a task force that “found and recaptured” millions of dollars
worth of Bitcoin paid to the allegedly Russia-based DarkSide hackers
following an attack on the Colonial Pipeline system in May.

What Monaco didn't say is that by accelerating enforcement actions,
the DOJ was in effect providing confidence to millions of retail
investors that someone was looking after their interest in a market
which the government had for years depicted as the "wild wild west."
Needless to say, such as intervention will only increase retail
participation.

Meanwhile, in a clear indication that the government is already
planning how to capitalize, and not penalize, the incipient stablecoin
industry, the Federal Deposit Insurance Corp, or FDIC, a key U.S.
banking regulator, is reportedly studying whether certain stablecoins
might be eligible for its coverage, Coindesk reported citing five
people familiar with the agency’s thinking said.

    The agency is trying to analyze what so-called pass-through FDIC
insurance might look like for the reserves that stablecoin issuers
hold at banks, the sources said. Such coverage would insure holders of
the tokens against losses up to $250,000 if the bank holding the
collateral were to fail.

    The FDIC is also looking at what regular, direct deposit insurance
might look like for banks that want to issue stablecoins, people
familiar with the discussions said.

“This is all part of a process by which they are trying to bring
stablecoins into the banking system in a responsible manner,” one
insider said. “It depends on what’s backing the stablecoins. If it’s
backed by reserves at the Fed[eral Reserve] for cash then I think you
just make the argument that it’s a deposit. If it’s backed by
Treasurys, I think you’ll have a hard time treating it as a deposit.”

That all may be, but once again it misses the forest for the trees,
namely that the government is taking increasingly permissive steps to
give new investors some implicit comfort that the government is
watching out for their interests and, in the case of stablecoins, that
they may even be insured from total losses should the stablecoin
issuer collapse.

That said, it wasn't exactly clear how an FDIC backstop would work for
stablecoins: if the FDIC went ahead and provided deposit insurance for
stablecoins, it would apply only if a bank that was banking a
stablecoin issuer or that was issuing a stablecoin itself went into
receivership. Even in this scenario, it’s rare that FDIC insurance
would enter into the picture because the agency generally takes a
failed bank’s assets and deposits and sells them to a healthy bank.

“The FDIC is probably looking at whether stablecoins can count as
deposits or whether someone’s ownership of a stablecoin is a deposit
at the stablecoin issuer,” said Todd Phillips, a former FDIC lawyer
who is now the director of financial regulation and corporate
governance at the Center for American Progress, a Washington think
tank.

The coverage could present challenges for issuers. Typically, these
companies identify customers when they deposit cash for stablecoins or
redeem the tokens for cash. But since stablecoins run on open, public
blockchain networks (usually Ethereum), theoretically anyone with a
crypto wallet that hasn’t been blacklisted can receive stablecoins
from and send them to other wallets.

“One thing to remember is that each person has insurance of only up to
$250,000,” said Phillips. “So, the stablecoin issuer would need to
keep track of who is the current holder of their stablecoin, and how
many they own.” Whatever the FDIC insures has to not compromise the
rest of the agency’s mission, he said.

How the agency proceeds could potentially help protect consumers,
Phillips added.

“The FDIC basically has one overriding mission which is to ensure the
safety of the Deposit Insurance Fund, the DIF,” Phillips said. “If the
FDIC were to insure a stablecoin, that insurance would come out of the
DIF and the FDIC will want to be very sure that they are on legal
footing and that whatever they do doesn’t risk the DIF.”

“The FDIC has strict rules as to which institutions may call
themselves FDIC-insured or use the FDIC logo for advertising,” he
said. “Just as how the FDIC’s logo on a bank’s website allows savers
to be confident that the bank is a safe, insurance of particular
stablecoins and permission to use the FDIC logo would provide clarity
about which stablecoins, up to the insurance limit, will not lose
value.”

It’s likely that the agency will ask for public comment from the
industry before any actual policy change is taken, Phillips said.

“I also imagine there are conversations going on between the four FDIC
directors, since you need a majority of them to approve a new
regulation,” he said.


In Welcome News For Cryptos, Biden Admin Seeks To Regulate Stablecoin
Issuers As Banks

As we noted earlier, traders have been at a loss to explain today's
sharp 10% move higher in bitcoin and the broader crypto universe, with
a variety of explanations being proffered including Jerome Powell’s
comments Thursday that the central bank had “no intention” to ban
cryptocurrencies, others pointing to Chamath's statement that Bitcoin
has “effectively replaced gold”, some pointing to Visa's announcement
on Thursday outlining for what it calls a "universal payments channel"
that will facilitate CBDC transactions and which will be deployed on
an Ethereum layer, while the more technical traders cited price levels
such as moving averages that are closely watched by technical
analysts.

And while it is likely that today's burst higher in the crypto sector
is some combination of all of these, we can now add one more reason
for near-term crypto optimism: amid rampant speculation that the US
Treasury and/or regulators seek a permanent crackdown on stablecoins
such as Tether and Circle's USDC - which has for a long time been
viewed as the weakest link in the crypto ecosystem, with many
speculation that it facilitates currency flight out of China - moments
ago the WSJ reported that the Biden administration is considering ways
to impose bank-like regulation on the cryptocurrency companies that
issue stablecoins, including prodding the firms to register as banks.

Just as importantly, the administration is also expected to urge
Congress to consider legislation to create a special-purpose charter
for such firms that would be tailored to their business models, the
WSJ sources said.

According to the WSJ, the moves "are intended to address regulators’
fears that stablecoins—digital currencies pegged to national
currencies like the U.S. dollar—could fuel financial panics and need
to be more tightly regulated." This would take place in parallel with
the Financial Stability Oversight Council deciding whether to
designate stablecoin activities as systemically important.

    From the administration’s perspective, it would be preferable if
Congress were to impose or authorize a bank-like regulatory framework
for stablecoins, as well as a series of investor protections for
cryptocurrencies. If Congress doesn’t act, and its other
recommendations go unheeded, the administration wouldn’t be reluctant
to use FSOC, one of the people said.

And since it appears that bank-like regulation for stablecoins is now
inevitable, it is also virtually assured that stablecoins will be
deemed systematically important.

Which is actually great news for both stablecoins, and the greater
crypto ecosystem, because it means that instead of crushing this vital
link between fiat and digital tokens and seeking to snuff out
cryptocurrencies at the root - as China has done - the US will instead
push aggressively with a regulatory approach, one which most industry
participants had already expected.

Indeed while at present many stablecoins are lightly overseen at the
state level, some companies, such as Circle, have said they are
seeking to become banks. And at least some members of Congress, such
as Sen. Cynthia Lummis (R., Wyo.), have recently signaled that
stablecoins may need to be regulated in this manner.

“It may be the case that stablecoins should only be issued by
depository institutions” or by firms regulated as mutual funds, Ms.
Lummis said in a Senate speech this week.