Biden Admin Wants to Regulate Stablecoins. Here’s What That Means for Investors

editorial independenceWe want to help you make informed decisions. Some links on this page — clearly marked — may direct you to a partner website and may result in us earning a referral commission. For more information, see How we make money.

The Biden administration shared some fresh thoughts on cryptocurrency Monday — proposing new legislation to regulate stablecoins.

In a report of the President’s Working Group on Financial MarketsTreasury Secretary Janet Yellen says of stablecoins that “lack of appropriate oversight poses risks to users and the wider [cryptocurrency] system.” The report goes on to propose specific new regulatory legislation that would essentially put stablecoins into the same regulatory environment in which banks operate today.

Stablecoins are a unique type of cryptocurrency whose value is pegged to the US dollar. So where Bitcoin and Ethereum rise and fall by the day and even hour, stablecoins remain stable, just like the value of a dollar.

While stablecoins are most commonly used by advanced crypto traders as a means of trading crypto on an exchange, experts say these types of cryptos have the most potential for future use by ordinary consumers to buy things. And it is precisely this potential for increased use by more Americans that has caught the attention of federal authorities such as Securities and Exchange Commission (SEC) chairman Gary Gensler, Federal Reserve chairman Jerome Powell and Yellen, among others.

Cryptocurrency is still relatively in its infancy as an asset class, so any new regulation could have a major impact on investors’ portfolios. Learn more about what’s in the report released this week and what investors should think about it here.

What New Crypto Regulation Is Proposed?

In fact, the report proposes classifying stablecoin issuers as banks, which would subject them to new rules designed to protect people who trade and use stablecoins. The report highlights three specific proposals for new legislation:

Stablecoin issuers must be insured as custodians Stablecoin issuers and platforms must be subject to federal oversight and meet appropriate risk management standards

The report recognizes that stablecoins have potential for future innovation to expand payment options for US consumers, even while highlighting the need for new regulations. “Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter,” Yellen said in the report.

While the proposed legislation would require action from Congress, the report says U.S. financial regulators such as the SEC and the Commodity Futures Trading Commission (CFTC) will take action to address issues as they arise and fall within their respective jurisdictions. even without new legislation.

What does the report mean for crypto investors?

There are reasons why cryptocurrency investors should welcome new regulation and oversight, such as the proposed legislation outlined in the report.

“As much as I love the decentralization and lack of government [involvement]I’m glad they’re paying attention because unfortunately there are a lot of scams out there with cryptocurrency,” said Kiana Danial, author of “Cryptocurrency Investing for Dummies,” in a July interview with NextAdvisor.

While there are probably no immediate changes crypto investors should make based on the contents of the report released this week, it’s a good reminder that policymakers are paying attention.

The basics of investing in cryptocurrency remain the same. Stablecoins were the focus of the report, but experts say investors should stick to the two major cryptocurrencies: Bitcoin and Ethereum. They have a longer track record of appreciation, even though they remain highly volatile with day and hour price movements.

You also need to make sure cryptocurrency investments don’t get in the way of other financial priorities, such as saving for emergencies, paying off high-interest debt, and saving for retirement. Make sure you don’t invest more than you could lose — or no more than 5% of your total portfolio, experts say.

When it comes to where to buy and trade crypto, it makes sense to choose a mainstream, large-scale cryptocurrency exchange — such as Coinbase or Gemini — that proactively complies with evolving federal and state regulators.

Related Posts

Leave a Reply

Your email address will not be published.