New US Crypto Assets Regulation: Opportunities and Risks Coexist

Recently, the United States passed important digital currency legislation known as the "GENIUS Act," with more related bills under review. These initiatives indicate that the U.S. is expected to become a major hub for global Crypto Assets activities. However, supporters of the new legislation need to proceed with caution to avoid counterproductive outcomes.

The crypto industry has gained significant political influence through political donations and other means, which has led to the design of new legislation appearing to favor hindering reasonable regulation rather than promoting it. This trend could trigger a massive boom-bust cycle.

Historically, the main advantage of the U.S. financial markets over those of other countries has been greater transparency, allowing investors to better understand risks and make informed decisions. The U.S. has also established strict anti-conflict of interest regulations that require fair treatment of investors and limit the risk-taking of financial firms. This framework is the result of laws and regulations established after the Great Depression of the 1930s, and it has been continuously refined since then. It is these rules that have made the U.S. a place where it is easy to do business, foster innovation, and raise capital.

However, the "GENIUS Act" seems to have not fully considered these historical experiences. The Act creates a framework for stablecoins but fails to effectively address the inherent run risk of stablecoins. The business model of stablecoin issuers is similar to that of banks, but the Act prevents regulators from establishing strong capital, liquidity, and other safeguards.

What is more concerning is that the bill allows foreign issuers to invest reserves in high-risk assets not denominated in US dollars, which could lead to serious asset mismatch risks. If the US dollar appreciates significantly, it could trigger a liquidity crisis and a run on the bank.

Another bill under consideration, the CLARITY Act, could exacerbate these issues further. This bill may condone conflicts of interest and self-serving transactions, potentially reaching the highest levels since the 1920s. Furthermore, these bills could inadvertently facilitate the use of stablecoins and Crypto Assets for illegal financial transactions.

Although the United States may become the global center for Crypto Assets, this rapid development also brings significant risks. If Congress is too eager to cater to the demands of the encryption industry, it may expose the United States and even the entire world to the risk of a financial panic reoccurring, which could lead to severe economic damage, including mass unemployment and loss of wealth.

Therefore, when advancing legislation on Crypto Assets, it is crucial to balance innovation with regulation, and opportunities with risks. Decision-makers need to learn from historical lessons to ensure that the new regulatory framework promotes industry development while effectively preventing systemic risks.