Bitcoin has pulled back from its 2020 high of $10,460 to a seven-day low of $9,517. Is this a healthy pullback or has the market reacted to news that US Treasury Secretary Steven Mnuchin says “significant” new crypto regulations are in the works?
To date, US regulators have been measured when it comes to blockchain assets. Bitcoin was classified as property by the IRS, and Ether was deemed not to be a financial security. Only ICO tokens have been actively targeted by the SEC. The majority of the crypto community can agree that these regulations make sense.
The Empire Strikes Back?
As each year goes by, the potential threat of a serious regulatory crackdown on crypto in the US has become less and less. Today, crypto has grown into a multi-billion dollar industry that employs hundreds of thousands of individuals across the globe. Moreover, large influential corporations, such as ICE and Fidelity, are now deeply involved in the industry. Therefore, regulating crypto “into the ground” seems highly unlikely at this point.
However, none of that has stopped Treasury Secretary Steven Mnuchin, from announcing that there are “significant” cryptocurrency regulations on their way.
In a Senate Finance Committee hearing on February 12, Mnuchin stated that a lot of time is being spent focusing on cryptocurrencies both on an inter-agency basis and at FinCEN. Additionally, he announced that there are “some significant new requirements at FinCEN” to make sure that technology moves forward but “cryptocurrencies are not used for the equivalent of old Swiss secret number bank accounts.”
Mnuchin also said that he shares the concern of the Senate that the lack of transparency in cryptocurrency transactions means that they could be used by malicious actors and announced that “you will be seeing a lot of work coming out very quickly” to tackle this issue.
Blockchain, Not Bitcoin
While blockchain technology is being adopted left, right and center by startups corporations and public sector institutions across the globe, the sentiment among lawmakers remains largely negative towards cryptocurrencies.
The “blockchain, not bitcoin” sentiment has – arguably unsurprisingly – not gone away despite the growth of the cryptocurrency industry and its lobbying efforts on Capitol Hill.
Minneapolis Federal Reserve president Neel Kashkari, for example, recently referred to cryptocurrencies as “a giant garbage dumpster.”
"In the […] cryptocurrency world, there are thousands of these garbage coins out there. Literally, people have been fleeced for tens of billions of dollars, and finally, the SEC is getting involved in cracking down on this," he added while speaking at an event.
And, of course, there is US President Trump, who publicly declared his dislike of bitcoin and cryptocurrencies on Twitter last year. He famously tweeted: “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.”
The US remains one of the largest markets for crypto, which means that harsh regulations that curtail market activity will likely affect market prices negatively. However, global growth in the crypto industry should remain firm as regulatory arbitrage is always on the table for international companies.