Treasury will define U.S. crypto policy — eventually
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If the U.S. ever develops a coherent philosophy of how to regulate the cryptocurrency industry, it will likely emerge from the U.S. Treasury.
Why it matters: The blockchain industry's hopes and frustrations have for years been focused on the U.S. Securities and Exchange Commission, but the Treasury Department controls the big picture.
"Treasury is the overall policy center for financial services in the government," Roger Nober, director of George Washington University's Regulatory Studies Center, tells Axios.
- While the department has convened studies, the fact that it hasn't articulated that clear defining vision is part of why the industry gets mixed signals from D.C. — which is its own kind of problem, Nober says.
Zoom in: Treasury has called for more effective oversight of cryptocurrency markets. And it's called for the federal government and Congress to fill regulatory gaps.
- But what it hasn't done, is issue a tone-setting statement that clarifies for other parts of the government either that the industry should be, on balance, fostered or forced away.
Between the lines: Treasury has exercised its power over the industry in a few main ways, one of which is in preventing financial crimes.
- The department's Financial Crimes Enforcement Network (FinCEN) bureau is the one to watch, because of its role in anti-money laundering (AML), Katherine Lemire, a partner at the law firm Quinn Emanuel, tells Axios.
- "It's the — with a capital T — federal agency charged with implementing AML laws," she said. "FinCEN has the teeth."
- All the way back in 2013, it asserted its authority over crypto exchanges as money services businesses, requiring that they implement monitoring regimes on their platforms.
More recently, Treasury has mainly made blockchain news in its taxation and sanctions capacities.
- The Office of Foreign Asset Control (OFAC) has recently forbid Americans and its companies from interacting with wallets associated with white supremacey in Europe, ransomware gangs, Russian commodities and privacy protocols.
- The IRS, also under treasury, has also been working out how much information to ask of crypto traders when they report. Obviously, it can choose to make this easy or extremely difficult.
Our thought bubble: The IRS could go further. It probably could decide to treat cryptocurrency more like foreign currency, so that gains and losses when used in small transactions don't count toward taxes.
- For now, any disposal of cryptocurrency that's gained in value is taxable. Buying a $30 tshirt at a crypto conference with BTC? Report it.
What we're watching: Stablecoins.
- Treasury Secretary Janet Yellen called stablecoins, which currently have a $169 billion market cap, a danger to financial stability, particularly in the case of a run on a large provider.
- And that was before Russia started teasing using dollar-backed stablecoins to evade sanctions, which won't go unnoticed if it takes off.
- "Treasury is looking at the cross-borders," Reena Aggarwal, the director of Georgetown's Psaros Center for Financial Markets and Policy, tells Axios.
The bottom line: Whichever presidential candidate wins the election may define the approach of Treasury in the next administration, but playing it by ear will no longer be an option.
- "They are going to come up with some kind of crypto policy. The train has left the station," Aggarwal said.
