By Kevin Theissen
It’s becoming more difficult to ignore news about digital currencies. Two of the more recent topics being discussed are:
- Should the Federal Reserve issue a central bank digital currency (CBDC)?
- Should digital currencies be better regulated?
Federal Reserve Chair Jerome Powell confirmed in July that he is undecided about whether the U.S. central bank should issue a CBDC, according to Ann Saphir and Dan Burns of Reuters. Although a CBDC would eliminate the need for private digital money, especially digital currencies that claim to be pegged to the U.S. dollar, Powell’s position indicated that digital currencies have yet to become a widely accepted means of payment.
“Critics of stablecoins say they pose significant risks to financial stability, especially after it was revealed that some of these dollar-pegged tokens are not backed by actual U.S. dollars, but a combination of riskier assets,” reported Chris Matthews of MarketWatch. “Powell said in a congressional hearing that regulators need to apply rules to stablecoins that are similar to those that govern bank deposits and money market mutual funds.”
Both Congress and the Securities and Exchange Commission (SEC) are considering ways to regulate digital currency. In fact, the pending bipartisan infrastructure bill includes tax-reporting requirements for cryptocurrency brokers. And in a new setback for crypto industry advocates fighting this proposal, House Democrats effectively blocked attempts to scale back digital currency tax rules that are tucked into the infrastructure plan.
Ultimately, the House Rules Committee, which sets that chamber’s debate terms, agreed to prohibit the consideration of amendments to the infrastructure bill when it hits the floor. On Aug. 24, the full House voted 220-212 to lock in this procedure, setting up a vote on the infrastructure package by Sept. 27.
If the bill passes without changes, digital currency sales would be reported to the IRS in a way similar to stock sales. This change is expected to generate about $28 billion in taxes over a decade to help pay for infrastructure, reported Marcy Gordon of AP News.
Along with tax regulation, digital currencies may become subject to greater securities regulation. At the Aspen Securities Forum, in early August, SEC Chair Gary Gensler discussed the need for cryptocurrency regulation: “As new technologies come along, we need to be sure we’re achieving our core public policy goals. In finance, that’s about protecting investors and consumers, guarding against illicit activity, and ensuring financial stability… at our core, we’re about investor protection. If you want to invest in a digital, scarce, speculative store of value, that’s fine. Good-faith actors have been speculating on the value of gold and silver for thousands of years…I believe we have a crypto market now where many tokens may be unregistered securities, without required disclosures or market oversight. This leaves prices open to manipulation. This leaves investors vulnerable.”
Whether or not changes to the cryptocurrency market are made via this infrastructure bill, they certainly seem likely in the near future.
Kevin Theissen is the owner of HWC Financial in Ludlow.