Five reasons why cryptocurrencies are sounding the alarm

Interest in cryptocurrencies has grown over the past year and policymakers are scrambling to catch up. Investors rushed into major digital currencies such as bitcoin and a growing industry of financial products linked to them, prompting regulators to set new rules for a rapidly growing world.

Financial regulators appointed by President BidenJoe BidenJudge agrees to unseal 2020 ballots in Georgia County for George Floyd’s family audit to visit White House on Tuesday Biden: US to provide vaccines to South Korean service members MORE recently pledged to crack down on any manipulation or abuse within the cryptocurrency industry, while industry advocates insist the government must establish clear and consistent rules that everyone must follow.

Here are five reasons cryptocurrencies are boosting Washington’s stock:

Soaring and volatile price

As stocks hit record highs through 2020, major cryptocurrencies exploded right next to them. The price of a bitcoin has risen from around $ 7,300 at the start of 2020 to a high of $ 63,503 in mid-April of this year. Other important cryptocurrencies such as ethereum and even coins created as jokes such as dogecoin have seen equally meteoric rises, causing a cycle of investor enthusiasm driven by soaring prices and prominent ad hoc supporters such as Elon muskElon Reeve MuskChina bans Tesla cars from certain government complexes: Musk report tells Moscow he could expand Tesla manufacturing in Russia Business opposition has not moved the needle in the fight for the right to vote ; sport could MORE.

But the rally weakened significantly this week shortly after Musk disowned bitcoin, hitting $ 30,000 of its price – two months of growth – and 40% of its value since last Friday.

“If you are a crypto investor, you have probably faced some major drops in the past. But this time around, it was particularly painful, ”wrote Lule Demmissie, president of Ally Invest, in a research note on Friday.

“Bitcoin looked like the classic case of a congested trade that turned. Investors have shifted from Bitcoin to Ethereum to Dogecoin in search of the hottest trend in the crypto space. This week, crypto holders rushed to the exits, with all three coins down 30% or more from their highs, ”Demmissie added.

New technology

Big banks and investment firms that once refused to touch cryptocurrencies are now accepting digital tokens as a sustainable part of the financial industry, helping to legitimize the booming technology.

After the Office of the Comptroller of the Currency (OCC) gave banks the green light to hold cryptocurrency for customers, the U.S. bank, Bank of New York Mellon, and Citibank took steps to offer cryptocurrency services. Goldman Sachs, one of the first investment banks to adopt cryptocurrency, this month announced its intention to offer Bitcoin derivatives amid intense demand for crypto-related betting, raising concerns among skeptics of the sector.

“My general concern is that these initiatives have not been carried out in full coordination with all stakeholders. They also do not seem to have been part of a larger strategy linked to the regulatory perimeter. I believe tackling these two tasks should be a priority, ”Acting Currency Comptroller Michael Hsu said at a House hearing this week.

Increasing pain for platforms

As the powerful players on Wall Street began to dip their toes into the world of crypto, the online trading platforms and apps that have developed alongside the digital currency boom have hit several technical and political speedbumps. .

Coinbase, the world’s largest cryptocurrency exchange, and other businesses experienced blackouts this week amid crypto selling, and Binance – another exchange – has limited all but a handful of crypto options trades. -currency in the midst of the frenzy, eliciting negative reactions from users.

The intense price swings and the technical problems they spawned have sparked more skepticism among Democratic lawmakers about the legitimacy and safety of cryptocurrencies as investment products.

Sen. Sherrod brownSherrod Campbell Brown Democrats fear Jan 6 probe hijacks agenda Sherrod Brown pushes watchdog to keep crypto firms out of banking system Biden faces big Fed leadership decision MORE (D-Ohio), chairman of the Senate Banking Committee, this week urged the OCC to take a closer look at decisions made by its predecessors to allow certain crypto trading and custody companies to offer certain banking services to the nationwide.

“A company that cannot meet the stringent requirements applicable to other banks should not be allowed to present itself to the public as a bank,” said Brown, calling cryptocurrencies “risky and unproven.”

But Peter Van Valkenburgh, research director at cryptocurrency think tank Coin Center, countered that OCC oversight is more likely to protect pre-existing customers of these companies than to attract new ones.

“A bunch of people are already using this thing,” he said. “Do you want them to use it through a company that has strict federal regulations, or do you want them to go find an international exchange that is licensed anywhere? Because they will.

Security concerns

Some critics of cryptocurrencies see them as a means of money laundering and fraud. While these are far from the only current or potential uses, high-profile cases of crimes involving cryptocurrency – including the $ 5 million bitcoin ransom received by suspected colonial pipeline hackers – have fueled the media. concerns about regulatory gaps.

The cryptocurrency industry does not clearly fall under the jurisdiction of a state or federal regulator, making it difficult to establish uniform standards or crack down on potential crime.

The Treasury Department is responsible for collecting taxes on cryptocurrency and ensuring compliance with anti-money laundering rules. The Securities and Exchange Commission has jurisdiction over certain investment offers involving cryptocurrencies, while the Commodity Futures Trading Commission has jurisdiction over other products, in part because digital coins themselves blur the lines between securities. and raw materials.

And while federal banking regulators will monitor how the companies they oversee manage crypto, there is not a single federal agency with the authority to regulate spot cryptocurrency exchanges, forcing many companies to obtain approval. State-by-State certification of money transfer supervisors.

“While this is new, it is up to these regulators to figure it out because this problem will not go away,” said Ethan Silver, partner at law firm Lowenstein Sandler.

More money means more taxes

With more investors buying more cryptocurrencies for more money, the IRS has stepped up efforts to educate crypto owners about their tax burden. The agency caused a stir in 2019 by explaining how crypto investors, some unsuspecting, should report investment income and potentially pay capital gains taxes.

But the IRS sparked even more backlash on Thursday after announcing that as part of President Biden’s plan to strengthen tax compliance, individuals are expected to report receiving cryptocurrency with a fair market value of more than $ 10,000, as they currently report cash transactions.

Bitcoin fell sharply after the announcement, which raised fears of high tax bills or limited future price growth among investors.

“As long as we just provide an equal treatment between cash and crypto, we provide the necessary clarity, and that’s almost always positive,” Van Valkenburgh said.