Is the Cryptocurrency Industry Destined to Relive the Fate of the Banking System...

 1 year ago
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Financial Advisor

Over the last few months, the crypto industry has reached many important milestones in becoming an integral part of the financial system; still, it does not mean that the road ahead will be less rocky as governments all over the world only started to develop specific regulatory measures for digital currencies.

Earlier this week, the Biden team issued a report recommending Congress to pass legislation that limits stablecoin issuance to insured banks. Thus, they plan to address the vast majority of risk concerns. On top of that, the report suggests that Congress specifically addresses custodial wallet providers, placing them under a federal regulator as well and limiting stablecoin issuers’ interactions with non-financial companies such as tech or telecom providers.

It should be mentioned if Congress fails to pass such laws, the regulatory agencies have the authority to take their measures. By the way, SEC Chairman Gary Gensler said that the U.S. Financial Stability Oversight Council, the U.S. Securities and Exchange Commission, and the Commodity Futures Trading Commission are already planning to "roll out full protections" of the relevant laws for stablecoins while Congress considers the law. So it turns out that in one way or another, soon enough the level of regulation in the cryptocurrency industry may be equal to the ones we are used to in the banking sector.

The only question is why stablecoins? According to US Treasury Secretary Janet L. Yellen, the widespread use of coins as a means of payment raises a number of concerns. They relate to the likelihood of a “destabilizing circulation” release of assets, disruptions in the payment system, and a concentration of economic power. In addition, tightening the screws for the digital assets will provide an additional form of government support in the event of a crisis.

One of the biggest risks of these new regulatory measures is that traders could begin to get rid of all stablecoins, triggering “panic selling”. As a result, the market could face consequences similar to those experienced by the banking system when people take money out of the banks and spark their collapse. Does this mean that the crypto bubble is about to burst? Of course not, especially because the market practically doesn’t react to this sort of news.

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