President Joe Biden is planning executive action for federal agencies to regulate cryptocurrencies, digital assets and bitcoin, as he argues it is a matter of national security. It strikes at a time when the crypto sector, as well as the stock market, is going through a tumultuous time, losing large amounts of value, as the Federal Reserve has said it will start raising interest rates to cool down. inflation. His sights are not just on bitcoin. Regulators will look into stablecoins and NFTs. The Biden administration will also coordinate efforts with regulators and world leaders.
Regulators, such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission, the Internal Revenue Service and the self-regulatory Financial Industry Regulatory Authority, will likely coordinate their investigations. They will also consider whether or not the tokens should be considered and registered as securities.
Usually, when a sector of the financial industry raises concerns, regulators conduct extensive and invasive reviews and audits. They will grill the executives and key players of platforms and brokerages that offer clients to buy, sell and trade securities. Trading activities will be scrutinized for any pattern of potentially illegal or unethical behavior.
Although bitcoin and other coins are not yet considered securities, regulators will look into whether there are instances of money laundering, pump-and-dump schemes, shady trading practices, sales fictitious and market manipulation. It would be a complete game-changer if the Biden administration got its fill on this issue.
An underlying and unspoken reason for Biden’s seemingly sudden interest may be all the money lying around in the crypto space. Biden’s multi-trillion dollar infrastructure and other plans are creating huge debt for the country. The world of digital assets is now too big to fail, but it’s not too big to make a lot of money out of it.
If regulators discover irregularities, substantial fines and tax levies can be imposed on everyone involved in the crypto ecosystem. The US Treasury Department is already reviewing which entities will be considered a crypto broker under the infrastructure bill passed by Congress last year, and the reporting of any capital gains or losses to the IRS.
Gary Gensler, the new chairman of the SEC, the premier regulator of financial services firms and Wall Street, has previously expressed concerns about digital assets.
Gensler took office when Wall Street went wild. During the pandemic, young novice “investors” fell in love with meme stocks and traded aggressively on Robinhood. Cryptocurrencies have become all the rage and a number of digital asset exchanges and platforms have emerged to meet the overwhelming demand for buying, selling and trading bitcoin, dogecoin, ethereum and crypto. other cryptocurrencies.
There has been a boom in underwriting IPOs and SPACs. Questions have arisen about Chinese stocks listed and traded on US stock exchanges and the practice of order flow payment. Investors complained about activities that looked suspiciously like pump-and-dump schemes and attempted market manipulation.
Gensler shared his concern with CNBC, saying of the regulatory agency, “We are understaffed.” He added: “It may seem strange to say that [about] an agency with 4,400 remarkable and dedicated employees working remotely during this difficult pandemic. But it is 4 to 5% less than just five years ago.
The shortage of personnel and the proliferation of new types of companies and products shouldn’t surprise industry insiders too much. In the aftermath of the financial crisis, compliance and regulation have become a top priority. The carnage created during this period created the need for greater oversight of securities markets, bankers, brokers and traders.
Regulators have cracked down on money laundering, insider trading, Ponzi schemes and other types of abusive and violent practices. The need for risk, audit, legal, compliance, privacy, regulatory and other professionals was insatiable. Compliance has grown from a sleepy type of back office job to one of the hottest and fastest growing professions on Wall Street.
Things quickly changed when President Donald Trump took office. His administration has made the deregulation of America’s financial markets and corporations a top priority. Trump claimed that with fewer rules and regulations, corporate “animal spirits” will kick into high gear. Businesses, freed from heavy regulatory burdens, would be free to aggressively pursue bold business ventures. Besides high taxes, regulations were seen by Trump as anathema to corporate growth and profits. He ordered that new rules should not be needed and that existing ones be considered and discarded, as he famously proclaimed: “For every new rule, two must be revoked”.
Regulatory budgets were cut and regulatory staff felt they were not appreciated or adequately supported. Many left to pursue other opportunities. Savvy players on Wall Street noticed the change in policy and now we have seen the results.
The SEC and other financial regulators, such as the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, the Commodity Futures Trading Commission, the Federal Reserve Bank, and FINRA, a self-regulatory organization, are likely to requesting and receiving funding from President Joe Biden’s administration, especially since Senators Elizabeth Warren and Bernie Sanders have been outspoken with their dislike and distrust of Wall Street.
It is reasonable to believe that there will be an aggressive hiring drive at the SEC and other regulators. Strict examinations, audits and examinations of the securities and cryptocurrency sectors will take place. To keep banks and financial institutions safe and out of the crosshairs of regulators, there could be a substantial increase in the hiring of professionals in compliance, risk, audit, legal and of regulation.