Examining the Potential Challenges and Hurdles in Crypto Regulation by 2024
As we approach the end of 2023, the cryptocurrency market has experienced a series of significant events, including high-profile legal cases and changes in leadership. These developments have sparked calls for comprehensive crypto regulation in 2024, although experts have expressed skepticism about the likelihood of legislative action.
One notable development in 2023 was the introduction of two major crypto-related bills by Republican lawmakers, indicating a growing focus on cryptocurrency regulation. The first bill, H.R. 4766, known as the Clarity for Payment Stablecoins Act, proposes a detailed regulatory framework for stablecoins, with a particular emphasis on redeemable variants. The bill includes provisions such as mandatory reserve holdings, restrictions on acceptable assets, and transparent redemption procedures. It also envisions a dual oversight system, balancing federal and state jurisdiction, and addresses the role of subsidiaries of insured depository institutions.
The second bill, the Lummis-Gillibrand Responsible Financial Innovation Act, is a bipartisan effort to establish a comprehensive digital asset policy in the US. This bill includes provisions such as mandatory registration for crypto exchanges with the Commodity Futures Trading Commission (CFTC), limitations on stablecoin payments to banks or credit unions, and strict penalties for violations of anti-money laundering laws. The bill also focuses on consumer protection by mandating segregation and third-party custody to prevent situations like the FTX controversy. Additionally, it proposes increased funding for regulatory agencies and incorporates crypto assets into existing financial taxation and reporting frameworks.
Both bills face significant challenges in the legislative process. The stablecoin bill has faced opposition from the White House and former Chair Maxine Waters, whose support is seen as crucial for its progress. The Lummis-Gillibrand Act, despite addressing broader financial innovation concerns, is predicted to have only a 25% chance of passage in 2024. This is due to potential resistance from the Securities and Exchange Commission (SEC) and the uncertain position of Senate Banking Committee Chair Sen. Sherrod Brown.
Market analysts estimate that there is a 60% to 75% chance of the stablecoin bill passing in 2024, depending on the stance of SEC Chair Gary Gensler and potential legal challenges. The introduction of spot bitcoin exchange-traded funds (ETFs) could also have a significant impact, as it could help legitimize the crypto sector and encourage substantive legislative action.
Looking ahead to 2024, there are several factors that will influence the legislative landscape for crypto regulation. The congressional review of the SEC’s Staff Accounting Bulletin No. 121 will impact how customer crypto holdings are recorded. Additionally, the outcome of the 2024 elections could play a crucial role in shaping the direction and momentum of crypto-related legislation.
As the cryptocurrency sector continues to evolve, there is a growing anticipation for regulatory clarity. The outcomes of these legislative efforts in 2024 will shape the future of digital assets in the United States, making it a potentially transformative year for crypto regulation.