In 2008, when Bitcoin first surfaced, not many lawmakers could have estimated that cryptocurrencies would rise up to an asset group worth $2.5 trillion. Nonetheless, the capacity of cryptocurrencies to build an even more inclusive and efficient financial system has caught the attention of investors. However, the emergence of stablecoins, primarily supported by fiat money, acts as regulatory obstacles and is likely to impair the stability within the global financial system.
The US House Committee on Financial Services holds a hearing on financial technology and cryptocurrencies on Wednesday, based on a report on stablecoin published by the Treasury Department in the previous month. The executives from top industry players such as; Circle, Bitfury, FTX, Coinbase, Stellar, and Paxos will elaborate on the threat that stablecoins and similar crypto technologies constitute. In addition, they will further spot ways to boost consumer protection and prevent illegal activities like money laundering, terrorism financing, and ransomware attacks.
The world’s reserve currency remains the US dollar, the Congress’s attitude towards the crypto industry could notify that of other nations – rendering the United States as a standard-bearer. Along with accustoming themselves to the rapid-pacing crypto world, regulators need to formulate clear-cut rules of the road to maintain innovation alongside mitigating risks. The potential of these cryptocurrencies is to weaken the control administered by the monetary system and resultantly undercut the power of the authority, presenting a certain amount of risk to the United States. In the absence of decisive actions, the US market might end up being supervised by foreign frameworks.
The renowned stablecoins in terms of market capitalization are; USD Coin, Binance USD, and Tether supported by the US dollar. Stablecoins are currently utilized for lending, borrowing, and trading; however, their backers hope that it soon gets adopted as a mode of payment as well.
Demand for cryptocurrencies and digital modes of payments has risen quickly among consumers who look out for boosted security and convenience in financial services. Leading companies such as Meta (Formerly known as Facebook) have devised their own stablecoins to contend with native currencies like Bitcoin, fiat currency, and the central bank’s digital currencies. In addition, the Covid-19 pandemic encouraged the adoption of blockchain and digital payment technology because of the rise in the overall up-gradation of digital goods and services. As a result, the use of cash has contracted considerably over the recent years. However, the use of cryptocurrency as a mode of payment isn’t as widely spread as that of other digital payment alternatives at the moment.
Stablecoins are yet in the budding phase of their evolution; however, their market value sums up to $150 billion, and they assure of administering cross-border payments with economical transaction fees. But, private control over stablecoin’s supervision and issuance has developed concerns that it will weaken fiat money and the global monetary policy. Moreover, experts have criticized and raised queries regarding stablecoin’s backing; it could pose a threat if consumers have trouble exchanging their tokens against cash. For instance, Tether was penalized with a $41 million fine by the Commodity Futures Trading Commission in October for fabricating their reserves.
Stablecoins in the United States has not met with an all-inclusive regulatory framework. Although cryptocurrencies are covered by various legal definitions based on their usage, it has the federal agencies struggling to gain control over this sector. The Biden governance’s $1 trillion deal for infrastructure that got legally signed last month constitutes provisions ruled out for crypto taxation; however, their applicability remains ambiguous. Other law enactments related to crypto regulation have been stalled in Congress. In the meantime, few industrial pioneers have expressed the most preeminent proposal by calling the Stable Act an “adversity,” debating that it would smother innovation and refrain individuals from engaging in crypto networks.
Congress won’t be able to answer all the doubts about stablecoin’s regulations, at least in the short run. However, Wednesday’s hearing seems to move in the right direction, ultimately directing to the gray zones in the cryptocurrencies legislature. Further, it urges that stablecoins turn into something conventional; the negotiations focusing on the entire segment are eventually expanding beyond individual firms. One crucial aspect to view; that’s if the hearing falls upon the technical points about cryptocurrencies technology and if there are any possibilities, if any, for regulators to administer within the crypto industry towards creating a solid policy framework.
Significant areas for collaboration could consist of:
- Dealing with the enhanced ransomware risk.
- Boosting cybersecurity norms around the cryptocurrency world to safeguard the integrity of online transactions and obstruct scandalous attempts at hacking.
- Lessening the influence of crypto transactions and mining on the environment.
The Treasury Department offered many recommendations in its report, primarily that the parties issuing stablecoin be treated as banks, exposing them to federal surveillance. But, it did not extend comprehension on whether the federal commodities and securities laws cover stablecoins. It advises that the Commodity Futures Trading Commission and the Securities and Exchange Commission may not be suitable to attend to the systemic risks brought about by stablecoins. At the same time, they could still pose a crucial part towards additional crypto assets like non-fungible tokens.
Over time the regulators won’t be able to neglect the potentially transformative part where cryptocurrencies will take on the future monetary system. Moreover, with the cutting-edge competition over cryptocurrencies between private firms and governments building up, today’s rulings will also lead the way to the future of global finance.