Across the globe, Cryptocurrency is slowly becoming more regulated. Yet are the laws in place enough, and what does the new GENIUS act mean for the future of stablecoins?
The middle of July heralded what became known to the US Congress and public as ‘crypto week’ as a wave of approvals regarding cryptocurrency passed in the House of Representatives. One of the most important was the Genius Act, also known as the Guiding and Establishing National Innovation for U.S. stablecoins. The Senate passed it in June, and it is now on its way to be signed off by the President.
What Is the Genius Act?
Cryptocurrency has seen significant gains this year, with bitcoin rising over 30% in value.. This has been primarily down to a new regime in the US, which has favoured cryptocurrency. Data from Binance shows bitcoin currently trading at $115,085., after reaching a recent high which topped the $124,000 barrier. Yet altcoins have also done well, with coins like XRP showing a 25% gain in the last month alone.
Two other bills were also considered. They included one related to government-issued digital securities and another regarding their classification. They have been sent to the senate, where they are yet to undergo a vote. The GENIUS bill was signed into law on 18th July, following bipartisan support from both sides of the Senate.
Overall, these bills are part of what has been coined the CLARITY Act. It is trying to create clear market rules for cryptocurrency. It also facilitates the Anti-CBDC Surveillance State Act, which prevents the Federal Reserve from creating a digital currency.
Opposition to the Genius Act
Not everyone has been celebrating. There are voices that have raised concerns that these bills, designed to increase financial transparency and protect consumers, do not go far enough. Worries are that they could still be used to move money illegally. Concerns are also prevalent regarding corporate interests, and if companies could issue their own private cryptocurrencies.
Several consumer and advocacy groups addressed a letter that read, “Some members may believe passage of this bill, even with flaws, is better than the status quo. We believe this is a fundamental misunderstanding of the risks involved with these instruments.” This seemed to be taking a swipe at tech firms, who may now be able to engage in bank-like practices without the oversight given to the industry.
What Are Stablecoins?
Stablecoins are a form of cryptocurrency that is pegged to an asset, such as a fiat currency like the US dollar. The aim of this is to provide all the benefits of a digital currency, without its inherent volatility. It can make them more useful for everyday purchases and retail transactions, which is what bitcoin was originally intended to do.
It is not only currencies that they can be backed with. There are also commodity stablecoins, which are pegged to physical assets like gold or oil. Technology-backed solutions also exist, such as crypto and algorithm options, which burn tokens depending on market demand to keep it as close as possible to a dollar peg.
The law will set standards so that stablecoins maintain a regulated price. Specialist, licensed operators described as “permitted payment stablecoin issuers” will be required to hold a reserve of fiat currency or reserves to every dollar of stablecoin they offer. These can also include bank deposits, treasury bills, and central bank reserves.
These companies will also have monthly reviews, auditing their reserves. It will also ban all interest-bearing products. Stablecoin issuers will also have priority over any other claims against the issuer in bankruptcy.
Stablecoin Regulation Across the Globe
In the United States, the regulation for stablecoins has been extremely patchy. There have been different organizations that have overseen them, often stepping on each other’s toes and overlapping. The Securities and Exchange Commission and Commodity Futures Trading Commission first decide where they fall within the law. This led Ripple to a long legal battle, which was only resolved last year. The Office of the Comptroller of the Currency then looks after them regarding payments and potential risks.
The EU has a more robust approach, with the Markets in Crypto Assets (MICA) regulation. The GENIUS Act is very similar to this, providing rules such as regular audits and licensed issuers. It also has a raft of consumer protection laws.
Asia is much more fragmented, with each country having its own approach. Japan is in the midst of regulations, as is Singapore. However, some countries on the fringes, such as Bhutan, have gone wholesale into cryptocurrency usage with both Bitcoin and stablecoin issuance.
The only certainty is that this shows increased adoption of cryptocurrencies in mainstream finance. Regardless of the level of regulation, it is a start. Many believe this will only push the value of cryptocurrencies upwards. However, investors must be wary. It may also do the opposite, taking away the decentralized aspect and stripping crypto of what made it unique and desirable in the first place.
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