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The White House wants to usher in a golden age of cryptocurrency and make the United States the “crypto capital of the world” by rolling back some regulatory enforcement and championing legislation that would broaden its accessibility and appeal.
The most telling feature of the Trump administration’s radical policy shift regarding crypto is the overturning of several policies put in place by the Biden administration that emphasized a cautious posture that sought to identify and mitigate the risk of cryptocurrencies. This was a stance that many in the cryptocurrency industry perceived as stifling for innovation, leading to the “Crypto Winter” of late 2022. At the heart of the White House’s new crypto framework is a comprehensive effort to resolve the persistent regulatory ambiguity that has defined the digital asset landscape in the U.S. for years.
The Trump policy strategy tackles reforming the cryptocurrency market by pushing for landmark legislation to create a permanent, clear market structure, coupled with an immediate executive mandate for federal regulators to provide more clarity to the industry.
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A similar push to codify the regulation of digital assets is in the works in Congress. The first of these bills to become law, the Guiding and Establishing National Innovation for U.S. Stablecoins Act, or GENIUS Act, established a regulatory framework for stablecoins. Alongside the GENIUS Act, the House also recently passed the Digital Asset Market Clarity Act, or CLARITY Act, and the Anti-CBDC Surveillance State Act. The CLARITY Act would establish a clear regulatory framework for digital assets, mainly by distinguishing cryptocurrencies as either commodities or securities. Meanwhile, the Anti-CBDC Surveillance State Act would ban the Federal Reserve from releasing a central bank digital currency without congressional approval.
These developments have set a clear regulatory path for stablecoins and crypto platforms, ushering in a new wave of institutional legitimacy and potentially widespread adoption of digital payments and finance in the U.S.
The GENIUS Act is the first major regulatory change that could trigger several significant shifts in the cryptocurrency industry, despite being limited to the regulation of stablecoins.
Stablecoins are a form of tokenized digital money using blockchain technology, the digital recordkeeping technology that bitcoin and other cryptocurrencies rely on. Their design aims to maintain a stable value, typically pegged one-to-one with conventional fiat currencies, most commonly the U.S. dollar. While bitcoin and other cryptocurrencies are volatile and trade as speculative assets, stablecoins are primarily used for payments, remittances, and liquidity in crypto trading and lending platforms.
So far, demand for stablecoins has largely been confined to the crypto industry. The GENIUS Act’s requirement for 100% backing of stablecoins with high-quality assets is projected to create a substantial new source of demand for U.S. Treasury securities and other safe assets. The scale of this demand, however, will depend on how quickly and widely stablecoins are adopted outside of the crypto industry.
Stablecoins offer merchants and consumers potential incentives over traditional money. Merchants could benefit from greater efficiency for payment settlement, particularly for cross-border transactions. For consumers, stablecoins work primarily as a non-interest-bearing store of value akin to store gift cards. While there are potential benefits to be unlocked by merchants from the likes of rewards programs for using stablecoins, similar programs for gift cards or credit payments are already available to consumers, so for now, consumers may not see a clear benefit to switching to stablecoins for payments.
Stablecoins could also pose some risks for banks, primarily as a new form of competition. Stablecoins will likely become direct competitors to other financial products like bank deposits and government money market funds. Banks, however, seem to be aware of this potential problem and many are working on launching their own stablecoins.
The establishment of a regulatory framework is helping move digital assets from the fringes of financial markets into the mainstream. This shift will attract new investors and will likely accelerate growth in the industry. That said, lack of understanding remains the primary reason most people don’t hold crypto. Most people still don’t feel knowledgeable about trading or using it.
Trust is another big hurdle for the widespread adoption of crypto, with many people still skeptical of an industry that has been plagued from the beginning with large-scale scams, fraud and stolen funds. As ownership of cryptocurrencies becomes more common, it is also important to remember that many risks remain, and fraud is still a big issue in the industry.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.