Several government agencies have made deeper moves into crypto oversight, leaving a trail of angry executives and unresolved political questions. And there's still no sign of a central bank digital currency, leaving the U.S. at risk of falling behind other countries in the race to support faster payment processing.
The
The OCC's action comes quickly after two unrelated moves from other regulators. The SEC is
The OCC's move is designed to widen bank support for stablecoins, which are often used to hedge against cryptocurrency's notorious volatility, and are part of most cryptocurrency payment initiatives. The
The letter had two different takes on risk, saying banks should be aware of fraud and other risks in using blockchain, yet saying the many nodes on a blockchain add resiliency and guard against tampering (the OCC used the more official term "independent node verification network" for blockchain).
Most immediately, the OCC's ruling would appear to be good news for
"[The OCC] will enable JPM Coin and other closed-loop ledgers to be used between banks, which expands the utility of the denominated stablecoin," said Tim Sloane, vice president of payments innovation at Mercator Advisory Group. "Missing from this is a stablecoin or digital currency directly controlled by the government."
Like most countries, the U.S. is considering a
The OCC's Monday letter leans toward bank involvement as a way to spur private sector competition more than the government in addressing digital money and faster payments.
"It is unlikely all banks will be comfortable using JPM Coin, so a more neutral approach is likely required," Sloane said. "In the long run this will open up competition to existing and planned faster networks and it's likely the global card networks will try to find a way in which they can add value to this new regulated value chain."
The OCC's management isn't certain, creating potential headwinds for the bank-friendly crypto policy. The Trump administration late in 2020 nominated OCC chair
The proposed Fincen regulations would require users to disclose personal information when sending cryptocurrencies to a private wallet, and store records for transactions totalling more than $10,000 over a specified period or any individual transaction of more than $3,000. Dorsey contends Fincen would create "know your customer" regulations for parties that are not Square's clients.
Square is not threatening to relocate, but Dorsey is suggesting the U.S. could lose crypto business if regulators take a heavy hand. Square and Ripple did not return requests for comment.
The government action from all three agencies follows a major rally for cryptocurrency over the past year as investors poured funds into crypto to hedge against inflation risk. The regulatory environment, particularly the SEC's stance on securities, makes it necessary to ensure cryptocoins stablecoins are available for public use and are not structured to raise money for a specific issuer, said Daniel Polotsky, founder of Coinflip, an Atlanta-based
The government action and cryptocurrency's 2020 rally draw attention to cryptocurrency as a payment method, which is generally good, Polotsky said. But there's also reason to ensure projects are structured in a way that doesn't make the cryptocurrency appear to be an investment vehicle and draw a government spotlight.
"Companies need to make sure they're decentralized, the assets immediately have value and have a use case," Polotsky said. "You don't want the crypto company and not a stock company. A crypto company can sell securities, but it has to become a broker, which is more expensive."
