Although some results from the 2020 elections ended up as predicted, many did not. Even with some fresh faces in Washington, a divided Congress would mean that sweeping legislative changes are unlikely but increased regulatory scrutiny and aggressive rulemaking—including in fintech—are very much in the fold.
The digital asset market has seen explosive growth over the last few years. Blockchain technology is becoming increasingly prevalent and playing a greater role in the financial services industry, with innovative technologies being leveraged to revolutionize financial markets, facilitate efficient payments, expand financial inclusion and reduce end-user costs.
With greater adoption comes a host of regulatory questions. How do we ensure privacy is protected? How do we manage market volatility? What is the industry doing to ensure market conduct and transparency? And what national security concerns need to be monitored?
Early names being floated for positions in the potential Biden administration have hinted at these questions previously, including Janet Yellen, nominee for Treasury Secretary. Yellen has previously said that she’s “not a fan” of bitcoin—“very few transactions are actually handled by bitcoin, and many of those that do take place on bitcoin are illegal, illicit transactions.”
However, in a 2017 speech before the Commonwealth Club, Yellen also said, “[Blockchain] is a very important, new technology that could have implications for the way in which transactions are handled throughout the financial system ... [and] make a big difference to the way in which transactions are cleared and settled in the global economy,” adding that these technologies could bring societal benefits.
New federal regulations could be promulgated, offering less leeway to state governments who have taken varied approaches—for example, Wyoming’s relaxed regime contrasts New York’s more robust policy frameworks.
Regulatory debates could also focus on the definitions and classifications of cryptocurrencies, which are important to both trading and custody, as well as regulation of the platforms and networks in which they trade and operate. Biden transition team leader Gary Gensler has explored reclassifying Facebook-backed Libra’s (now Diem) token as a security. Depending on this outcome, market participants could see their tokens’ domestic status change, potentially forcing some digital asset firms to relocate to markets with a more favorable regulatory climate.
A resurgent Consumer Financial Protection Bureau (CFPB) could also scrutinize digital asset firms. Under previous administrations, the CFPB has taken a hardline approach to monitoring and governing cryptocurrencies—often zeroing on perceived systemic risks rather than the benefits digital currencies provide. Biden has prioritized reinvigorating Senator Elizabeth Warren’s CFPB, so one can reasonably expect increased activity there.
Critical to the industry’s continued success and further institutional adoption is identifying balanced policy solutions that promote ethical conduct while allowing the industry to flourish. Even though our industry is young, it is incredibly sophisticated—with experienced players who have explored these questions amongst ourselves and in policy sandboxes, and bring a wealth of deep expertise in financial market regulation. For instance, the Association of Digital Asset Markets (ADAM)’s members agree to adhere to the association’s Code of Conduct, which promotes ethical conduct in the marketplace and offers guidance on issues such as market ethics, compliance and transparency. As the organization’s new CEO, I am eager to share the best practices developed and the Code of Conduct adopted by my group’s members as a foundation for policies that will govern our growing industry.
Digital asset firms should be prepared for industry-changing proposals from the Nation’s Capital in the coming months and years. Key players need to partner with regulators to provide them with the information and best practices needed to craft balanced policies that will protect the continued growth of the marketplace. Our team at ADAM stands ready to help, having substantial expertise crafting legislation and regulations—as well as a sophisticated roster of members whose industry experience will be useful to regulators. As the landscape for digital assets evolves, market participants must be prepared to engage directly and swiftly before the market is decided for us.