The recent collapse of the FTX cryptocurrency exchange, along with other crypto-related disasters, has raised the question of how to effectively regulate digital currencies. With a range of options, from banning crypto to supporting it with government assistance, the debate has been heated. Many have pushed for a complete ban, similar to the one China imposed in 2021 to monitor its citizens more closely. However, this approach is seen as too extreme for the United States.
The Securities and Exchange Commission has advocated for its existing powers to regulate securities to be used to control cryptos. This would mean declaring certain tokens as securities and litigating the case, a slow and inefficient process. Furthermore, it would not have been able to prevent the FTX crash or other crypto-related catastrophes. The Commodity Futures Trading Commission has proposed a less stringent regulation in the Digital Commodity Consumer Protection Act, a bill allegedly pushed by former FTX CEO Sam Bankman-Fried and other crypto industry members.
A third option was put forward by a group of top US financial regulators who suggested a bank-based regulatory structure. This would apply to stablecoins, which are digital currencies designed to have a stable value in comparison to the dollar. Under this plan, stablecoin issuers would be licensed as FDIC regulated and insured banks. However, this would impose high compliance costs and be the equivalent of banning crypto for many businesses.
Sen. Pat Toomey (R-Pa.) proposed a different approach with his bill, which would authorize a new type of Office of the Comptroller of the Currency licensing for stablecoins. This would be less burdensome than a bank license and require issuers to disclose assets and redemption policies, as well as submit quarterly reports. While financial statements would not be necessary, it is illegal to invest in an entity without seeing audited financial statements.
The sixth proposal is to not regulate crypto in any way, instead treating it as a “minefield” and warning investors of the risks. This is consistent with the original libertarian values of cryptocurrency, but full disclosure of financial statements must be included for a federal regulatory system to be established.
In conclusion, the sixth approach is more superior in philosophy but must be combined with audited financial reports and disclosures of risky material such as assets and redemption policies. This combination is the best way to regulate cryptocurrency.
Howard B. Adler Is an attorney and former Deputy Assistant Secretary Of Treasury For the Financial Stability Oversight Council. Alex J. Pollock Is a senior fellow at Mises Institute A former Principal Associate Director You can find the Treasury Office Of Financial Research. They These are the co-authors for the newly published book Surprised Again! The COVID crisis and the new market bubble”.