Just a few months ago, cryptocurrency enthusiasts were hoping Washington was warming up to digital assets. But cyberattacks demanding ransoms in bitcoin, wild trading and reprimands from regulators have eroded their optimism.
The timing couldn’t be worse. Policymakers are poised to make a number of critical decisions on virtual tokens in the coming months – decisions that could reveal just how far the industry needs to come out of the hole. The advisability of approving a Bitcoin exchange-traded fund, authorizing cryptocurrency mutual funds, and granting banking licenses to financial companies is potentially under consideration.
For advocates, the setbacks fuel concerns that some of their top priorities will be blocked by federal agencies and lawmakers will take a tougher approach to oversight. There is growing evidence that Capitol Hill is moving in this direction. Senator Mark Warner, D-Va., Said last month that cryptocurrencies “require a certain level of regulation.” Senator Elizabeth Warren reiterated this view on Wednesday.
“Our regulators, and frankly our Congress, are an hour behind and a dollar short,” the Massachusetts Democrat said in an interview with Bloomberg TV. “We need to know where these cryptocurrencies are going.”
The bad patch started in May when Securities and Exchange Commission Chairman Gary Gensler urged lawmakers to pass legislation regulating cryptocurrency exchanges, arguing the lack of oversight posed a serious threat to U.S. investors. . The comments shocked Bitcoin supporters who predicted Gensler would be an ally because, unlike most government officials, he is familiar with virtual coins.
Then the Colonial Pipeline Co. hack happened in early May, triggering fuel shortages in the eastern United States. The long gas lines have caught the attention of lawmakers, and the scrutiny may make some on Wall Street nervous about embracing more assets that are regularly linked to illicit transactions.
The Justice Department has recovered most of the tokens Colonial paid for by tracking transactions on the public ledger for Bitcoin, showing how the technology is trackable and can help law enforcement.
While digital currency can be created, moved, and stored outside the purview of any government or financial institution, every payment is recorded in a permanent fixed ledger, called a blockchain.
This means that all bitcoin transactions are open. The Bitcoin ledger can be viewed by anyone connected to the blockchain.
“These are digital breadcrumbs,” said Kathryn Haun, former federal prosecutor and investor in venture capital firm Andreessen Horowitz.
Haun added that the speed at which the Justice Department seized most of the ransom was “revolutionary” precisely because of the use of cryptocurrency by hackers. In contrast, she said, getting documents from banks often requires months or years of paperwork and bureaucracy, especially when those banks are overseas.
Still, Warren said that a key feature of cryptocurrencies is that they allow people to secretly move money, making coins a “haven for criminals.” A reminder of his point came on Wednesday when Brazilian company JBS SA revealed that it had paid $ 11 million to hackers who forced the world’s largest meat producer to shut down all of its beef factories. in the USA.
Another problem: Bitcoin has lost more than a third of its value since the beginning of May. A series of negative Elon Musk tweets contributed to the plunge, pointing out to cryptocurrency critics that token prices are too volatile and easily swayed by social media to be safe for unsuspecting investors. The frenzy over non-fungible tokens and dogecoin – a cryptocurrency created as a joke – has amplified these concerns.
“We cannot deny the potential impact that a negative media narrative could have on regulatory and legislative conversations in DC in the near term,” said Kristin Smith, executive director of the Blockchain Association business group.
High finance is largely focused on Gensler, who previously taught digital currencies courses at the Massachusetts Institute of Technology, as the SEC will determine whether a bitcoin exchange-traded fund can be traded on U.S. exchanges.
The product is considered a game changer because it would allow investors to trade entries and exits of the world’s most popular cryptocurrency throughout the day without exposing them to the risk of having to store their tokens. Adding another layer of security, consumers could buy exchange-traded funds from closely watched brokers instead of buying bitcoin from unregulated exchanges. And mutual funds and other institutional investors could put a lot more money into cryptocurrency-related assets through the funds.
An SEC spokeswoman declined to comment.
Information for this article was provided by Ben Bain and Robert Schmidt of Bloomberg News (WPNS) and by Nicole Perlroth, Erin Griffith and Katie Benner of the New York Times.