WASHINGTON — The nation’s top financial regulators and lawmakers continue to show little urgency in regulating the crypto sector despite the industry’s ongoing historic meltdown and persistent oversight gaps, analysts say.
Early in 2022, the Biden administration appeared eager to bring regulatory certainty and much-needed oversight to the cryptosphere. In March, the White House issued a
That order followed on a separate report issued in Nov. 2021, when the President's Working Group on Financial Markets urged Congress to pass legislation that would
But in the months since, the government’s policy progression has slowed, even as far-reaching volatility in the crypto sector has cleaved as much as
Analysts watching the federal government for signs of life in crypto policy say they have become increasingly frustrated by both the Biden administration and Congress’s lack of focus on the sector, which they say continues to pose risks to consumers and the broader financial system.
“The surprising part, for me, is the lack of urgency in the wake of the crypto winter we’re in at the moment and the real damage to real people who have lost money,” said Isaac Boltansky, managing director at BTIG. “It has harmed individuals, investors and families. There have been real implications. But there wasn’t a financial stability incident as a result, and D.C. seems kind of sanguine about it.”
A white paper outlining a framework for “interagency engagement with foreign counterparts” on digital assets,
“The crypto executive order was issued in March. It’s July,” Tahyar said in an interview. “Anybody could have written a two-page press release talking about how U.S. regulatory agencies are going to interact with their international counterparts 48 hours after that. It’s not bringing anything new to the table.”
Congress, similarly, has shown little appetite for any organized legislative push to bolster new crypto regulations. A number of bills have been introduced in either the House or Senate in recent months, ranging from stablecoin-specific packages to broader digital-asset frameworks. But analysts see no legislation with serious support.
“What legislative process are we referring to? There is no legislative process,” Boltansky said. “We’ve had a few one-off bills, which, if anything, has shown just how far away we are from legislation than suggesting any meaningful progress.”
The House Financial Services Committee’s hearing schedule for the month of July — generally the last chance for summer hearings before Congress’s lengthy August recess — featured no hearings to discuss crypto. Jaret Seiberg, a managing director at the Cowen Washington Research Group, wrote that the absence was “astonishing.”
“This reinforces our view that Congress this year will not legislate on crypto,” Seiberg wrote in a research note on July 7. “There has not been nearly enough of a foundation laid for Capitol Hill to even know what it should do.”
A spokesperson for Democratic Sen. Sherrod Brown, who serves as chair of the Senate Banking Committee, said that the Ohio lawmaker was “dedicated to protecting Americans from the risks of cryptocurrencies.”
“In the past, overleveraged, risky products like over-the-counter derivatives have led to financial meltdowns that hurt workers, families and small banks the most,” said the Brown spokesperson. “It’s essential that we make sure we get this right with a thoughtful, all-of-government approach that puts communities first.
“Sen. Brown is continuing to work with his colleagues in Congress, the administration and the regulators to create a framework that will protect Americans’ hard-earned money and shield our economy from the systemic risks of digital assets,” the spokesperson added.
The bank regulators have taken some steps to limit financial institutions’ experiments with crypto in the absence of legal clarity. In separate interpretative letters from the Office of the Comptroller of the Currency and Federal Deposit Insurance Corp., both agencies told their supervised banks to check with them before diving headlong into digital assets.
“It was basically a warning shot across the bow telling banks that this was not an ask-for-forgiveness situation; it’s an ask-for-permission situation,” said Steven Kelly, a researcher at the Yale Program on Financial Stability. “That’s good, because there’s a lot that can be done on the supervisory front if they desire to.”
And at the Consumer Financial Protection Bureau, Director Rohit Chopra has made clear that the agency is exploring how its
To some extent, the crypto sector itself has been fairly comfortable with operating in some degree of regulatory ambiguity, though plenty of advocates have encouraged the government to
“I think part of why there’s been so much delay is this notion that existing regulators can look at their authority and say, ‘Well, this mostly fits under our existing tools, even if it's not what these laws were intended for,’ ” said Reggie Young, product counsel at Lithic and author of the newsletter Fintech Law TL;DR.
“The argument they can make is that we don’t need an overhaul because, for example, the [Securities and Exchange Commission] and [Commodity Futures Trading Commission] can already go after fraud,” Young said.
But many analysts say that for any part of the digital-asset ecosystem to be regulated holistically — including stablecoins — new legislation will almost certainly be required.
“I think new legislation is critical here,” Tahyar said. “I don’t think relying on existing regulatory structures does anything other than pound square pegs into round holes.”
But that doesn’t necessarily mean that Congress is solely responsible for the delay, analysts say. Historically, presidential administrations and highly specialized agency bureaucrats have played a key role in developing complicated and novel legislation.
That has not happened under the Biden administration so far. If anything, Biden’s regulators have
Representatives for the White House and the Treasury did not respond to requests for comment, and the FDIC, Federal Reserve, OCC and CFPB declined to comment.
The Biden administration “should have modeled legislation by now,” said Tahyar. “Think back to Dodd-Frank, or the Volcker Rule, or the Collins amendment. We have had a lot of legislative language come from the expert agencies. Congress needs concrete suggestions on how to regulate, and that’s what the administration should have done.”
Others say that before the government outlines a crackdown on crypto, it should determine what purpose stablecoins and other forms of cryptocurrency can serve in the first place.
“It would be nice to hear more about what the administration substantively thinks of the future of this industry, as opposed to the general talking points of ‘payments are slow and the internet is the future,” Kelly said. “What the administration has not answered is what, on the demand side, is the point of even letting stablecoins exist?”
“It just seems like they lack an overall thesis,” Kelly added. “If you want to be the hands-off, pro-innovation administration, you have to be careful, because innovation in finance is what causes crises in finance.”
