- The U.S. government is ramping up efforts to regulate virtual currencies stemming from FTX’s implosion.
- The Senate Committee hearing on virtual assets offered hints on the direction of the incoming regulatory policies.
- Investigations into staking and recent enforcement actions by the SEC have rattled crypto traders in the U.S.
Washington government officials have continued to view cryptocurrencies sceptically, and things might get grimmer for the fledgling asset class.
The U.S. Senate Committee on Banking, Housing, and Urban Affairs recently met in an open session to conduct a hearing on digital assets in response to the turbulence plaguing the markets. The hearing, titled “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets” was anchored by Senators Sherrod Brown and Tim Scott.
Both Senators expressed concerns about the lack of decisive action taken by the Securities and Exchanges Commission (SEC) in preventing the slew of catastrophes that plagued the industry. A common theme in their statements was the potential for virtual currencies to be used by bad actors and touched upon the “greater fool theory.”
Lee Reiners, Policy Director of Duke Financial Economics Center testified before the House, offering several suggestions on the way forward in regulating the asset class. Reiners suggested crystal clear disclosures for digital asset service providers and legislation precluding firms from mixing customers’ funds with their holdings.
Other witnesses include Professor Linda Jeng and Professor Yesha Yadav, both of whom offered the suggestion of establishing self-regulatory organizations (SRO) as a way out of the debacle of policing the virtual currency industry.
Previous hearings on cryptocurrencies have bounded off between promoting innovation and increasing regulatory and enforcement activities. A hearing back in late 2021 involving leading cryptocurrency executives seemed to indicate that the U.S. was poised to become a virtual currency paradise but 12 months down the line, a different tune rings out.
Cracking down on staking
The SEC has placed staking within its crosshairs following the $30 million settlement reached with crypto exchange Kraken. According to the SEC, Kraken’s staking program amounted to offering unregistered securities to the public, a decision that could set a new precedent for the virtual currency industry.
There are fears that the SEC might designate Ethereum (ETH) as a security on the heels of its transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS). In the event that the SEC designates the asset as a security, exchanges will be forced to register with the Commission before listing ETH.