Crypto Crackdown vs Digital Dollar plans

US regulators are forming a working group to explore the possibility of creating a US CBDC, marking the most concrete effort by US regulators to consider a digital dollar. The working group comprises the Department of the Treasury, Federal Reserve, Council of Economic Advisers, National Economic Council, National Security Council, and White House Office of Science and Technology Policy. Meanwhile, Politico Pro held an event called "Crypto Crackdown" on March 2, in which reporters discussed recent events in the crypto space, including the collapse of FTX, and the outlook for crypto legislation. The group discussed how crypto customers are considered unsecured, making it unlikely they will be made whole after companies go bankrupt. Additionally, regulators will likely be more cautious in regulating "fringe activities" like stablecoins than they were last year.

The BSV Blockchain Gazette is presented to you by Bryan Daugherty, Global Policy Director for BSV Blockchain Association, featuring:

• U.S Department of the Treasury, Federal Reserve, Council of Economic Advisers, National Economic Council, National Security Council, and White House Office of Science and Technology
• Politico financial services editor, Zach Warmbrodt, financial services reporter, Sam Sutton, and economics reporter, Victoria Guida.

US Regulators considering Digital Dollar

Treasury official Nellie Liang announced on March 1 that the Department of the Treasury, Federal Reserve, Council of Economic Advisers, National Economic Council, National Security Council, and White House Office of Science and Technology Policy will be forming a working group to explore the possibility of creating a U.S. CBDC. This is the most concrete effort by U.S. regulators to consider the creation of a digital dollar. Liang said that in the coming months, the group “will begin to meet regularly to begin to discuss a possible CBDC and other payment innovations.”

‘Crypto Crackdown’ - Politico Pro event

Additionally, below is a summary of an event Politico Pro held on March 2 called “Crypto Crackdown” with three reporters: Zach Warmbrodt, the financial services editor; Sam Sutton, a financial services reporter; and Victoria Guida, an economics reporter.

The reporters began by discussing recent events in the crypto space including the collapse of FTX. Sutton said Coinbase data shows that its number of users has fallen, as has the overall price of assets in recent months, which indicates weakness in the market. The reporters discussed how crypto customers are considered unsecured which makes it unlikely they will be made whole after companies go bankrupt. Warmbrodt noted that former FTX CEO Sam Bankman-Fried used to be considered a reliable resource to lawmakers and asked who will fill this role after his fall from grace. Sutton said some groups like Coinbase and Binance have attempted to take on this role but haven’t established the same type of presence that Bankman-Fried had.

When asked for his thoughts on the outlook for crypto legislation, Warmbrodt said it is “bleak” post-FTX. He referenced the disparate views held by leaders such as Senate Banking Committee Chair Sherrod Brown (D-OH) and House Financial Services Committee Chair Patrick McHenry (R-NC), noting that this indicates it will be hard to find any common ground on which to advance legislation. Sutton asked if the industry is likely to move abroad, and Warmbrodt noted that the EU has more holistic crypto laws taking effect which may make it a more supportive environment than the U.S.

In response to a question about recent guidance and statements from financial regulators, Guida said leaders previously allowed the industry to function largely without significant guidance, but as companies have collapsed, it has led to a series of documents being released addressing how banks should handle cryptocurrency involvement or deposits. The group also discussed the role of crypto in Operation Choke Point, the Department of Justice’s initiative focused on fraud and money laundering beginning in 2013.

Looking ahead, Guida said regulators will likely be more cautious in regulating “fringe activities” like stablecoins than they were last year, noting that FSOC was quite focused on using stablecoins as a form of payment last year.  When asked about recent SEC enforcement, Sutton noted that Chair Gensler has been focused on going after lending programs like Gemini, celebrity endorsements, and unlicensed securities. Warmbrodt asked if the U.S. will issue a CBDC and Guida said it is unclear. Warmbrodt noted that Lael Brainard’s shift from the Fed to the National Economic Council will affect the development of a CBDC given that she was a supporter of a digital dollar when she was at the Fed. When asked if a CBDC is a threat to private cryptocurrencies, Sutton said this may be a problem for stablecoin issuers, but generally a CBDC’s role and impact will depend on its design.