It has become obvious that the Federal Reserve and the Treasury Department are turning up the heat on cryptocurrencies, indicating that a crackdown may be on the way after several days of instability in the market. In an unusual video message posted Thursday, Fed Chair Jerome Powell said that cryptocurrencies, which have risen to have a market cap of nearly $2 trillion, pose some risks to both individual traders and the wider monetary system.
He also differentiated between volatile cryptocurrencies and so-called stable coins, which are linked to the value of other currencies such as the US dollar. “As the use of stable coin grows, so should our attention to the appropriate regulatory and oversight framework,” Powell said, adding that companies that process crypto funds will be subject to additional regulation.
Powell also stated that the Fed is investigating how and whether cryptocurrencies could benefit the current US monetary system. He mentioned that the Fed has been considering launching its own cryptocurrency, known as a central financial institution digital foreign currency, or CBDC. He stated that the Fed would publish a discussion paper this summer on the benefits and risks of establishing a CBDC and will solicit public feedback. “We expect any future CBDC to serve as a supplement to, not a replacement for, money and existing private-sector digital forms of the greenback, such as deposits at business banks,” Powell added.
Meanwhile, the Treasury Department has confirmed that it is taking measures to navigate the crypto environment. It announced on Thursday that any move worth $10,000 or more would have to be reported to the Internal Revenue Service. “Cryptocurrency also presents a significant detection disadvantage by encouraging illegal activity, including tax evasion,” the division said as part of a larger statement about the Biden administration’s efforts to combat tax evasion. “As a result, the President’s budget includes additional resources for the IRS to cope with the growth of cryptoassets.”
The regulatory consideration comes after weeks of speculation that the Biden administration was preparing to act on the cryptocurrency industry, which has grown in popularity and value in recent months. The crypto market has had a very risky week, as shown by Thursday’s bulletins. The stock market plummeted earlier this week as a result of regulatory changes in China. In less than 24
hours, nearly $400 billion was wiped from the economy, which has since largely recovered over the last few days.
After a new alert from Chinese officials about cracking down on cryptocurrencies, Bitcoin is once again in freefall as the weekend approaches. In late Friday trading, the largest digital currency dropped as much as 10% to $35,636, and peer tokens also saw double-digit losses. After finishing May 14 at $49,100, the coin almost reached $30,000 earlier this week.
The most recent setback came when China’s State Council renewed its call for Bitcoin mining and trading to be banned. Forced sale and the possibility of U.S. tax ramifications had already shaken the crypto market earlier this week.
