KIplinger 9/1/22
Along with regs, expect taxes. Even in a constitutional Republic, pols don't
want to lose the power to tax via inflation. Currently the Fed has doubled the
currency supply which means we have 100% inflation waiting that has to work its
way through over the next few years. DP After mushrooming amid scant
regulation… Cryptocurrencies are in for many new rules in the next few years,
as regulators in both the U.S. and other Western countries seek to bring some
order to this free-wheeling new sector of the financial world. The most basic
challenge regulators face: Deciding what exactly cryptocurrencies are. Are they
securities, and should they be regulated as such? Or are digital currencies
commodities, and thus subject to different rules and rulemakers? For instance,
the Securities and Exchange Comm. thinks that some crypto should be seen as
securities regulated by the SEC. But a federal judge ruled that virtual
currency like bitcoin is a commodity, subject to the Commodity Futures Trading
Comm. (The crypto industry would prefer to be regulated by the CFTC, a smaller
and arguably laxer agency.) Then there is the question of stablecoins...
digital tokens linked to conventional pegs of value like the U.S. dollar, but
not necessarily backed up by an equivalent amount of the conventional asset.
Should their issuers be treated like banks that are regulated as depository
institutions? So far, stablecoins have largely operated in a vacuum, but
regulators are worried that they could fail if not sufficiently backed by the
tangible asset they peg to, causing substantial losses for unwitting users.
Nonfungible tokens, or NFTs, are another regulatory question mark. NFTs confer
ownership of unique digital properties…images, works of art, collectibles, etc.
A few sell for inexplicable sums, making them possible vehicles for money
laundering. Regulatory answers to these issues won’t come overnight. But
they’re coming. Australia and the European Union have begun issuing crypto
rules. The U.K. plans to do so soon. China largely banned crypto usage…too
threatening to communist rule. In the U.S., the current regulatory landscape is
an incomplete patchwork. The first step will be setting priorities. In an
executive order, President Biden has tasked the SEC, CFTC, IRS and other
agencies with developing rules for crypto that focus on protecting the
stability of the financial system, protecting consumers, and promoting
beneficial new financial services that may be made possible by crypto.
Meanwhile, lawmakers are mulling legislation to clarify what different digital
assets are and which agencies should regulate them. It’ll be a while before any
such bill can pass. If all this sounds a bit academic, keep in mind just how
big crypto has gotten. One in five Americans reports having traded
cryptocurrencies. Younger people are especially likely to be active in the
market, yet many don’t understand the risks. The value of all cryptocurrencies
soared to $3 trillion last year, then crashed to $1 trillion more recently amid
extreme volatility. Since early 2021, over 46,000 folks have jointly lost $1
billion in crypto-related scams…casualties of a financial Wild West
