The U.S. Department of the Treasury is teaming up with federal agencies, including the Securities and Exchange Commission, to impose new regulations for the cryptocurrency market. Considered to be an urgent priority by the Treasury Department, their goal is to regulate stablecoins, which are mostly unregulated and have become very popular with those who invest in the crypto market in the past few years.
It seems that federal regulators are worried about the impact of virtual bank runs on stablecoins after some of the more popular coins like Pax Dollar and USD Coin have seen tremendous growth in the current year. These coins started their circulation with around $30 billion at the beginning of this year and are now valued at around $125 billion, indicating a 750% growth rate for 2021. The continued, rapid growth is expected keep on its path and is projected to be worth $300 billion by the year 2023.
The main purpose of stablecoins is to make transactions via cryptocurrency easier and/or to earn interest on your cryptocurrency stash. And since most virtual coins are volatile due to their speculative value, stablecoins are less likely to be affected by market swings because their value is based on the value of gold, the United States dollar, and other stable assets.
The fear of the government is that these coins may not be as stable as previously thought. Some of this doubt is due to the fact that these coins are hardly regulated by the federal government yet have a variety of different state laws that apply.
In addition, they fear that stablecoins are being issued by entities that do not have the actual funds to back up the coins’ value. Along with this, there have been issues when the high demand for stablecoin transactions caused trading outages that kept customers from buying/selling coins. The federal government wants to make sure that firms are completely prepared when there is a demand and investors want to cash out. This could be a huge problem if a large number of investors choose this action at the same time.
The U.S. Treasury Department is expected to announce the intention of their immediate plans to regulate the currency soon. In fact, the first step in regulating the crypto market will be revealed in a report due out his fall. The report will include the first draft of federal rules that will discuss the requirements and technical capacity of said software systems.
Additional regulations from the government could include specific rules about the creation of new stablecoins, requirements to protect the privacy of consumers, and the prevention of cryptocurrencies being used in illegal ways such as tax invasion and money laundering, and more.