Following President’s Biden Executive Order on crypto assets issued in March, the Department of Commerce (DOC) launched a consultation in May seeking feedback that would help it to develop a regulatory framework to support digital assets technology. However, the results from this consultation suggest that the department may not be able to rely much on feedback from stakeholders to have a sense of what people and businesses expect from crypto regulation.
On Tuesday (July 5), the DOC closed the consultation receiving 34 submissions, 10 of which have been published on the register´s website, with the general view that regulation is needed, but with the usual opposing views between proponents and critics of this new technology and its associated products. Yet, the responses offered some common views the department could use for its report.
The consultation launched by the DOC on May 19 included 17 questions addressing issues such as how to support the development of U.S.-based digital asset businesses, how to make digital asset mining more sustainable, the role of a central bank digital currency (CBDC) and the need to establish some technical standards, just to name a few.
The responses to the consultation could be divided into two groups. Those in the payment, blockchain and web3 environment offered a more positive view of digital assets and want the DOC to issue light regulation, but still regulation, while the traditional banking players highlighted the risks associated with crypto assets, namely money laundering or data breaches, and would like the DOC to impose more comprehensive regulation.
While the submissions do not offer specific regulatory recommendations or technical advice on how to make the U.S digital asset business flourish, it is worth noting that most of the respondents have some common views, despite their differences.
First and foremost, all the respondents requested regulatory clarity and a level playing field. For instance, Mastercard suggested that in addition to establishing clear rules it is also necessary to induce compliance with them and it provided an example of a travel rule. While the travel rule is in place, many virtual assets service providers have not implemented it and a stronger enforcement of the rule would “dramatically increase the adoption of Travel Rule, providing financial intermediaries with the ability to better detect and report on illicit crypto transactions.”
Another area of agreement is the need for talent and education. According to some data predicting the rapid growth of this sector, U.S. companies will need access to top talent that doesn’t exist yet, and it is very important for companies to access engineers and other professionals. More education and new visa rules are suggested as possible solutions.
The third area where there is agreement but with some differences is about the need for a retail CBDC. The general view is that a CBDC may not be necessary given other alternatives like digital payments, stablecoins or new payment networks like FedNow. The banking associations, like the American Bankers Association and the Independent Community Bankers of America, raised serious concerns about the benefits of a CBDC compared to its risks and most importantly for them, how the banking system will sustain the costs of providing some services like customer identification.
Both associations and some other respondents support the development of FedNow and other payment networks rather than a retail CBDC.
Then, in other topics, respondents clearly offered different view, like decentralized finance (DeFi), where banking association expressed concerns about this growing sector and Mastercard urged the DOC to regulate this space for the U.S. to play a leading role in setting regulatory standards.
The DOC may not be able to rely on significant public feedback at this stage, but the overall message from those who reply is that regulation, far from being an obstacle that could chill innovation, is now a necessary step to provide clarity and foster investment.