The White House is urging members of Congress to be more diligent as it pertains to future cryptocurrency legislation, with officials calling it a “grave mistake” to further tie in the digital currency with the broader financial system.
White House officials Brian Deese, Arati Prabhakar, Cecilia Rouse and Jake Sullivan penned a letter Friday as a “roadmap to mitigate cryptocurrencies’ risks.” In light of strenuous implosions and collapses across the crypto market in 2022, they vowed on behalf of the Biden administration to continue to ensure cryptocurrencies cannot undermine financial stability, to protect investors, and to hold bad actors accountable.
“Congress could also make our jobs harder and worsen risks to investors and to the financial system,” the letter reads. “Legislation should not greenlight mainstream institutions, like pension funds, to dive headlong into cryptocurrency markets.
“In the past year, traditional financial institutions’ limited exposure to cryptocurrencies has prevented turmoil in cryptocurrencies from infecting the broader financial system. It would be a grave mistake to enact legislation that reverses course and deepens the ties between cryptocurrencies and the broader financial system.”
The four officials wrote that “clear risks” emanate from crypto companies’ ability to make payments faster, cheaper and safer—adding that “some cryptocurrency entities ignore applicable financial regulations and basic risk controls.”
“Cryptocurrency platforms and promoters often mislead consumers, have conflicts of interest, fail to make adequate disclosures, or commit outright fraud,” the letter continues. “And there is poor cybersecurity across the industry that enabled the Democratic People’s Republic of Korea to steal over a billion dollars to fund its aggressive missile program.”
Arguably the most notable and egregious example of virtual currency negatively affecting swaths of investors was the situation involving 30-year-old FTX founder Sam Bankman-Fried and what was uncovered as a colossal Ponzi scheme.
The Securities and Exchange Commission charged him on December 13 with defrauding investors after his company began in 2019 and raised more than $1.8 billion from equity investors, in addition to approximately $1.1 billion from about 90 U.S.-based investors.
Some estimates totaled the loss at over $8 billion in customers’ money. SEC Chair Gary Gensler said in December that Bankman-Fried “built a house of cards on a foundation of deception.”
Republican Representative and Majority Whip Tom Emmer, also a co-chair of the Congressional Blockchain Caucus, said following Bankman-Fried’s arrest that centralized finance needs to be brought under the regulatory umbrella.
“It’s not about crypto; it’s about centralized finance,” Emmer said in December on Fox Business. “DeFi (decentralized finance) is the point. They’re going after decentralized finance. This is not what it’s about, it’s not about the crypto industry.”
The Minnesota congressman sent Gensler a letter in March of 2022, seeking details about the frequency and manner of its voluntary document requests to private, non-SEC-regulated crypto and blockchain firms.
“Crypto startups must not be weighed down by extra-jurisdictional and burdensome reporting requirements,” he wrote. “The SEC must ensure that its information-seeking requests to private crypto and blockchain firms are not overburdensome, unnecessary, and do not stifle innovation.”
That same month, Senator Ted Cruz of Texas introduced companion legislation to an earlier Emmer bill that aimed to prohibit the Federal Reserve from issuing a central bank digital currency (CBDC) directly to individuals.
Coin Telegraph reported that Cruz introduced a concurrent resolution dated January 25 to incentivize crypto use among members of Congress by only allowing crypto as a payment option at vending machines and food service stations.
Florida Democratic Representative Darren Soto successfully sponsored two bills in the House in June 2021, directing the Department of Commerce in consultation with the Federal Trade Commission to conduct a study on the state of blockchain technology and commerce—including its use to reduce fraud and increase security.
“It’s essential that the United States continue to be a global leader in these emerging technologies to ensure our democratic values remain at the forefront of this technological development,” Soto said on the House floor at that time. “As a responsible global leader, the United States must strike the appropriate balance of providing an environment that fosters innovation while ensuring appropriate consumer protection.”
The White House officials concluded their letter by saying they are pro-technological innovation but understand that such “technologies need commensurate safeguards.”
“Safeguards will ensure that new technologies are secure and beneficial to all—and that the new digital economy works for the many, not just the few,” they wrote.
Newsweek reached out to Emmer and Soto for comment.
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