Cryptocurrency prices were lower on July 25, while a congressional committee looks to advance a bill on stablecoins and a major bank bought a stake in a crypto custodian firm.
Bitcoin, the most popular cryptocurrency, was down 2.7% to $21,923.67 at last check, according to CoinGecko, while ether slipped 3.5% to $1,525.14, and dogecoin dropped 4.2% to $0.065145.
In regulatory news, the House Financial Services Committee reportedly plans to advance its stablecoin bill as soon as July 27.
‘Payment Stablecoins’
A stablecoin is a digital currency whose value is pegged to a stable reserve asset, like the U.S. dollar, the euro or gold.
Stablecoins are intended to provide some level of comfort to investors. But that was shattered in May by the collapse of the stablecoin UST, also called TerraUSD, and its sister token, Luna.
David Lesperance, managing partner of immigration and tax adviser at Lesperance & Associates, said the current legislation would require stablecoin issuers to maintain 100% reserves and bar them from lending stablecoins to customers.
Under the legislation, he said, stablecoins would be known as “payment stablecoins,” and bank and nonbank issuers would operate under the same regulations.
The Federal Reserve would license any nonbank stablecoin issuers and would be responsible for monitoring those firms’ financial health.
“There would also be strict rules on the types of assets that can back stablecoins and a prohibition on commercial companies such as Walmart (WMT) – Get Walmart Inc. Report and Home Depot (HD) – Get Home Depot Inc. (The) Report being issuers,” Lesperance said.
In addition, he said, the U.S. Office of Government Ethics has said that any executive-branch employees who own blockchain-based digital collectibles known as non-fungible tokens, or NFTs, must disclose the assets they hold for investment or production income valued at more than $1,000.
‘High Profile Cases’
Lesperance said the move comes after data in March showed spending on crypto lobbying has quadrupled since 2018. Crypto companies had been ramping up their attempts to influence cryptocurrency policy in Washington through the 2021 bull run.
Earlier this month, the ethics office barred U.S. officials who were personally invested in cryptocurrencies from working on crypto-related policy and regulation that could move the market.
“While one could argue that if you own crypto you shouldn’t be making policy on crypto regulation, the counter-argument is that how do you regulate in an area in which you have no personal experience?” Lesperance said.
“This would be like the SEC barring its employees from owning securities or the Congress requiring all its members to completely divest themselves of all publicly traded stocks or mutual funds.”
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Winston Ma, managing partner of CloudTree Ventures, said that while Congress mulls a regulatory framework for the cryptocurrency market, agencies like the Securities and Exchange Commission and the Internal Revenue Service may create regulatory practices through enforcement actions in current high profile cryptocurrency cases.
Ma, who is author of “The Hunt for Unicorns, China’s Mobile Economy and Investing in China,” noted that last week a former Coinbase (COIN) – Get Coinbase Global Inc Report employee and two other men were arrested and charged in what authorities said was the first insider-trading case tied to cryptocurrency.
Accelerating Rulemaking
“In a separate complaint, the SEC said that nine of the 25 tokens allegedly traded in the scheme were securities,” he said. “It seems that the SEC is ever closer to become the securities regulator of the crypto market.”
Ma said that Tesla’s (TSLA) – Get Tesla Inc. Report bitcoin dump highlighted the accounting and tax issues related to holding and trading cryptocurrencies, for which the Financial Accounting Standards Board and IRS may develop guidelines on disclosure requirements and tax treatment.
Tesla said that last quarter, the fair value of its bitcoin holdings was pegged at around $220 billion after the electric-vehicle producer dumped more than 75% of its holdings amid what Chief Executive Elon Musk described as uncertainty linked to China’s covid lockdowns
Bitcoin has lost 68% of is value since hitting its all-time high of $69,044.77 on Nov. 10, according to CoinGecko. Ether, the second-largest digital currency by market, has fallen 69% from its November high of $4,878.26.
“These high profile cases may accelerate crypto rulemaking in the U.S.,” Ma said.
Martin Hiesboeck, head of blockchain and crypto research at Uphold, said “there is a lot happening at the intersection of traditional finance and crypto, and the overall result is good.”
‘Next Logical Step’
British bank Barclays is expected to buy a stake in Copper, a cryptocurrency-focused firm providing custody services to institutional investors, according to a report from Sky News.
“Barclays adding a crypto custodian is the logical next step of institutional involvement,” Hiesboeck said. “Deal-making in this sector has only grown during the last months of turmoil, and many sound assets are now available at a discount.”
But during the last crypto bull market, he added, “we seemingly all got ahead of ourselves in thinking about a digital-payments world.”
“The current state of crypto, with the daily exploit and fishing scam, massive adoption moves from big government and banks, and project after project failing is telling us one thing,” he said.
“For a central bank to switch from controlling money flows and fiat distribution to actually getting involved in a digital currency for retail is a nightmare.
“It means reorganization, hiring, cybersecurity issues, switching out whole departments, and finally being blamed when things go wrong,” Hiesboeck continued.
“Central bankers have a habit of not liking to be wrong – so this investment doesn’t mean that they are ready.”