To retain its status as a global rule-maker and avoid becoming a rule-taker, the United States must prioritize clear and confident regulation of the digital-asset market in the coming year. The US faces three critical pathways for preserving its competitive edge in cryptocurrency: regulation, legislation, and designation.
Washington, DC – Following a turbulent 2022 for digital assets, 2023 saw significant strides in regulatory actions and market recovery. The recent settlement between US regulators and Binance, the largest cryptocurrency exchange globally, is expected to enhance trust, transparency, and accountability within the crypto space. However, despite these advances, the US risks falling behind without new regulatory frameworks in 2024. Policymakers can choose from three strategies: regulation, legislation, and designation.
Two years ago, President Joe Biden made a substantial move towards regulatory clarity with his Executive Order on Ensuring Responsible Development of Digital Assets. Yet, legislative progress has stalled since then, causing the US to lag behind other nations in regulating this sector, even though most digital assets are valued in dollars.
Ironically, US-led organizations such as the Financial Stability Board, the President’s Working Group on Financial Markets, and the Financial Stability Oversight Council have spearheaded global efforts to regulate the crypto market. As chair of the FSOC, Treasury Secretary Janet Yellen has called on Congress to advance legislation for regulating dollar-denominated stablecoins, a sentiment echoed by Federal Reserve Chair Jerome Powell. These calls highlight the risks associated with crypto, and while some economists suggest drastic measures, a more balanced approach would be to leverage blockchain and other emerging technologies to enhance financial services beyond traditional banking hours—a critical issue for global payments.
With nearly every major financial institution worldwide developing digital-asset strategies, it’s imperative for US policymakers to catch up. They should establish technology-neutral, principled regulations that promote competition in financial markets.
Congress must empower federal agencies to set market rules, explore central bank digital currencies, and regulate digital wallets. Streamlining state and federal banking and payment systems is crucial to prevent a potential fintech “constitutional crisis” and maintain America’s competitive edge.
The Treasury Department has also stressed the need for action. In November, Deputy Secretary Wally Adeyemo urged Congress to address the risks of crypto-financed illicit activities, pointing out the lack of transparency and regulatory oversight in certain crypto products. These products, he warned, could be as dangerous as financial fentanyl.
The absence of a US regulatory framework for dollar-referenced stablecoins—now licensed in places like the UAE, Singapore, and Hong Kong—poses a threat to American interests. This regulatory gap could lead to the creation of products that exploit the dollar’s trust while evading US regulations, potentially becoming havens for illicit activities.
At the very least, the US must ensure that foreign issuers of dollar-referenced stablecoins adhere to the Bank Secrecy Act, anti-money laundering laws, counterterrorism regulations, and sanctions. Otherwise, digital dollars could undermine international security rather than addressing the risks associated with dollar primacy.
Before labeling crypto firms or technologies as threats, the US must establish new rules. While there is precedent for labeling open-source technologies as national-security risks, major token issuers or exchanges have yet to be classified as systemically important financial institutions—an important step to prevent them from becoming too big to fail. Instead of letting offshore or near-shore crypto activities proliferate unchecked or allowing other countries to set standards for a market that is as quintessentially American as the internet once was, US policymakers must view 2024 as a pivotal moment.
The stablecoin bill advanced by the House Financial Services Committee in July 2023 has generated significant policy momentum. Bipartisan approval of this bill could be the best chance to address the rise in crypto dollar counterfeiting and preserve America’s dominance in digital-asset markets.
While advancing digital-asset policy will be challenging amid a contentious presidential election, it is essential for the US to remain a rule-maker rather than becoming a rule-taker. This is especially crucial as the European Union’s Markets in Crypto-Assets (MiCA) framework is set to take effect later this year, potentially creating a transatlantic regulatory divide.
To avoid this, the US must ensure its digital-asset policy this year not only focuses on regulation, legislation, and designation but also on advancing global regulatory harmonization. Without clear regulatory guidelines and American leadership in the crypto market, these efforts are likely to fall short.