Just a few months ago, crypto enthusiasts were hoping that Washington would turn to digital assets. But recent cyberattacks demanding ransom for Bitcoin, sharp trading, and reprimands from regulators have undermined this optimism.
The timing couldn’t be worse, as policymakers prepare to make a number of critical judgments about virtual tokens in the coming months, decisions that could reveal how deep the gap the industry must exit. The approval of a Bitcoin ETF is likely on track, with crypto funds allowed and banking licenses granted to financial firms.
For Bitcoin proponents, the setbacks are fueling concern that one of their top priorities will be subject to a ban by federal agencies, and tougher oversight action from lawmakers. Evidence is mounting that Congress is moving in this direction, with Senator Mark Warner, Democrat of Virginia, saying last month that cryptocurrencies “call for some level of regulation,” and Senator Elizabeth Warren reiterated that view last Wednesday.
“Honestly, regulators and Congress are late in timing and short on money,” the Massachusetts Democrat said in an interview with Bloomberg Television. “We need to catch up with the direction these cryptocurrencies are going.”
The harsh correction began in May when Securities and Exchange Commission Chairman Gary Gensler urged lawmakers to pass a law regulating cryptocurrency exchanges, arguing that the lack of oversight posed a serious threat to US investors. The comments shocked Bitcoin proponents who had speculated that Gensler would be an ally, since, unlike most government officials, he is well versed in virtual currencies.
The Colonial Pipeline hack, which caused fuel shortages across the eastern US, and, as in previous breaches, demanded a ransom payment in Bitcoin, highlighted the ramifications of cryptocurrencies on national security. Long gas pipelines are also expected to attract the attention of lawmakers, and the scrutiny could worry some on Wall Street about embracing more assets that are routinely linked to illicit transactions.
The Department of Justice has recovered most of the tokens paid by Colonial by tracking transactions in Bitcoin’s public registry, demonstrating how the technology can help law enforcement agencies. However, Senator Warren said the main advantage of cryptocurrencies is that they allow people to secretly transfer money, making coins a “haven for criminals.”
Warren’s view was recalled on Wednesday when JBS USA revealed it had paid $11 million to pirates who forced the world’s largest meat producer to shut down all of its US beef plants.
There is another problem, as Bitcoin has lost more than a third of its value since early May, and a series of negative tweets by Elon Musk contributed to the drop, assuring crypto critics that token prices are extremely volatile and easily influenced by social media, becoming unsafe for inexperienced investors. . The frenzy associated with non-fungible tokens and Dogecoin – a cryptocurrency created as a joke – has amplified these fears.
“We cannot deny the potential impact of negative media narratives on regulatory and legislative conversations in the capital in the short term,” said Kristen Smith, executive director of the Blockchain Association trade group.
Much of the funding into crypto is based on Gensler, who previously taught cryptocurrency courses at the Massachusetts Institute of Technology because the US Securities and Exchange Commission will determine whether a Bitcoin ETF becomes traded on US exchanges.
Change the rules of the game
The fund is seen as a game-changer, as it will allow investors to trade in and out of the world’s most popular cryptocurrency throughout the day without putting them at risk of having to hoard their tokens.
By adding another layer of security, consumers can buy ETF shares from strictly regulated brokers instead of buying bitcoin from unregulated exchanges. Mutual funds and institutional investors can pump more money into crypto assets through ETFs.
A spokeswoman for the Securities and Exchange Commission (SEC) declined to comment.
Under Guy Clayton, Gensler’s predecessor, the Securities and Exchange Commission (SEC) banned several exchange-traded fund applications, arguing that Bitcoin is too volatile and prone to manipulation.
Stephen Miro, a former Treasury Department official during the George W. Bush administration, said Gensler’s comments about crypto exchanges’ lack of protection for investors suggested he might share some of those concerns.
“It was a big turnaround four months ago when everyone said: Gensler taught a cryptocurrency course at MIT,” said Miro, managing partner at Beacon Policy Advisors, which tracks regulatory and legislative proposals, and is based in Washington. So we will get all our requests approved.”
The Securities and Exchange Commission (SEC) is facing a June 17 deadline on one of the proposals to list an exchange-traded fund from VanEck Associates Corp, one of several applications it is considering. The agency was previously postponed