The cryptocurrency industry, rather than democratizing financial services as its promoters have promised, so far has produced a minefield of frauds and thefts that federal regulators should redouble their efforts to police, the Treasury Department said in a new report.Get the full experience.Choose your plan ArrowRight
The department is urging financial watchdogs to make use of the authorities they already have, instead of waiting for Congress to clarify which agency will take the lead in developing rules for the sector.And it is pushing regulators and law enforcement officials to team up on tougher investigations into potential illegal activity in crypto markets.The report — focused on crypto’s impact on consumers, investors and businesses — is one of a series of studies Treasury and other agencies released Friday in response to a sweeping review of the federal government’s approach to digital assets that President Biden ordered in March.The others focus on the threats crypto poses to combating illicit finance and what the technology could mean for streamlining payment systems, including through the launch of a U.S.digital dollar.White House officials originally framed the effort as an attempt to ensure the United States harnesses crypto’s potential while mitigating its risks.
The implosion since then of several high-profile crypto projects deepened a rout in digital asset prices and wiped out hundreds of thousands of investors.The downturn has sharpened policymakers’ scrutiny of the sector that largely lacks federal oversight and underlined the need for a coordinated approach from Washington.“Together, we are laying the groundwork for a thoughtful, comprehensive approach to mitigating digital assets’ acute risks and — where proven — harnessing their benefits,” National Economic Council Director Brian Deese and national security adviser Jake Sullivan said in a statement.Crypto finds a bright spot in a stormy summer: Congress On the consumer front, the report suggests crypto presents an especially acute threat to lower-income people lured by the promise of quick riches.
It noted people reported $1.6.billion in losses from crypto-related scams and thefts to the FBI in 2021, while “the potential financial inclusion benefits of crypto-assets largely have yet to materialize.” The Justice Department in a separate report announced it has launched a national network of 150 federal law enforcement officials to coordinate crypto-related investigations and prosecutions.Dubbed the Digital Asset Coordinators Network, the effort aims to pool the technical expertise U.S.attorneys’ offices gain as they go after criminals exploiting digital assets.To bring more successful cases, the department argued for beefing up certain laws, including stiffening penalties for operating unlicensed money-transmitting businesses and extending the window for officials to prosecute crypto-based crimes, given the complex investigations they require.For the most part, however, the reports did not spell out a comprehensive plan for imposing federal oversight on the trillion-dollar industry.
The matter remains the subject of bureaucratic jostling between the Securities and Exchange Commission and the Commodity Futures Trading Commission, the two agencies contending to take the regulatory lead.Their respective heads offered competing views of the sector in separate Senate hearings on Thursday.SEC Chair Gary Gensler contended the vast majority of digital tokens qualify as securities, thus falling under his agency’s scope, while CFTC Chair Rostin Behnam argued instead most are commodities.
Nevertheless, a senior administration official told reporters, “I don’t really think there’s a tension” between the agencies.Crypto industry lobbying groups, which see the CFTC as a friendlier regulator and have been pushing for it to take the leading role, said they were disappointed with the administration’s reports.“The reports seem to kick the can down the road — we don’t see clear recommendations,” Crypto Council for Innovation chief executive Sheila Warren said in a statement.
“Those we do see seem to have an outdated and unbalanced understanding of the technology.” And Kristin Smith, executive director of the Blockchain Association, called the papers “a missed opportunity to cement U.S.
crypto leadership.” The administration has more work to do.In February, the Treasury Department is expected to deliver a report on the illicit finance risks posed by decentralized finance, the start-up sector proposing to replace the regulated middlemen of traditional finance with a blockchain-enabled model, and another by July on non-fungible tokens, or NFTs..
