What a thoughtful US policy on digital assets could look like. Evolved view from former SEC Chair Jay Clayton.
WASHINGTON AND DIGITAL ASSEts
I. Status – Washington is Flatfooted and the United States is Falling Behind
Tens of millions of Americans believe that the United Structure is outdated and unfair. They view digital assets – both new products and the “tokenization” of well-known traditional products – as the best means to modernize and improve the financial system. They feel ignored or dismissed by the SEC, the banking regulators, and certain members of Congress. They are thirsting for sensible policies and action.
Nearly 1 in 5 Americans hold digital assets. Over 52 million Americans participate in digital asset markets, 70% of whom are GenZ/Millennial and nearly half of whom are from diverse populations.
Digital asset users can be reached easily. Users pay attention to developments in the markets and in Washington. They want to see sensible leaders and policies. 83% of users favor candidates committed to clear rules for digital assets.
Voters are willing to cross party lines on this issue. Growing frustration with shortcomings of the current financial system and lack of meaningful engagement by regulators and Congress has made digital asset regulation an important factor in voting decisions. Voters are willing to cross party lines to support candidates who will take action.
Voters prefer pragmatic polices to blunt anti-crypto rhetoric. Users see digital assets as an advancement in efficiency and protection. They view anticrypto politicians and regulators as poorly informed, unresponsive to their concerns about the current financial system, and captured by inefficient incumbents.
Support is accelerating and respected institutions are calling for change. Recently, large well respected institutions have joined in the call for tokenization and updates to the financial system.
Financial regulation stands at a crucial juncture. It is time for concrete, pragmatic action.
II. Meaningful, Safe, Pragmatic Steps that Can be Taken Immediately
The inaction and lack of leadership on regulation is widely apparent, harmful to U.S. interests, and unnecessary. Regulators can immediately take the following steps. They will improve competitiveness, resilience in the U.S financial system and increase consumer protection. Failure to take these steps is a choice that will harm U.S. financial system and consumers.
Clarify rules for the custody of digital assets. The SEC can immediately rescind SAB 121 – a staff level action – and clarify that banks can custody digital assets. The SEC is currently forcing custody – the safekeeping of assets – outside the regulated banking system.
Issue guidance regarding stablecoin products. Stablecoins have demonstrated the global acceptance of digital assets and have extended the reach of the U.S. dollar, yet there has been zero guidance from Washington. The SEC and CFTC can immediately clarify what types of stablecoin products are (or are not) securities, and the banking regulators can clarify what types of stablecoin products are permissible for banks. Banks, fintech companies and consumers are currently in the dark.
Dedicate resources to anti-money laundering and national security. Digital assets can better fit within U.S. AML and KYC regulations than traditional assets. Regulators should immediately dedicate resources to ensuring the transition to digital assets improves our commitments to law enforcement and national security.
These important incremental steps will facilitate innovation and enhance competition and consumer protection. There is no excuse for inaction.
III. Consequences of a Continued Failure of Regulators to Act
The negative consequences of inaction on this front are apparent, and will only become more significant over time. Absent immediate action:
Other countries will step into the breach, putting the U.S. at a competitive disadvantage. Countries like the U.K. and Singapore are taking forward-looking action on digital assets, and in the last 6 years, the U.S. share of global blockchain development has fallen from 40% to just 26%.
The U.S. dollar’s status could be threatened. The U.S. dollar’s status is driven by many factors, including its broad acceptance and efficiency. Emerging digital currencies, like China’s digital yuan, are focused on both acceptance and efficiency, posing a threat to the U.S. dollar’s status.
Consumer protection, privacy and other U.S. values could be undermined. Consumer protections, property rights and privacy protections would be undermined if non-U.S. digital currencies prevail. Only by taking an active leadership role in the development and facilitation of digital assets, including U.S. dollar stablecoins, can the U.S. ensure our core rights and values are protected.
Digital asset-related jobs would be pushed overseas. Digital asset-related job growth in the U.S. will stagnate if our current inaction continues. Indeed, Electric Capital projects that 1 million such jobs could be pushed overseas if the present regulatory environment persists.
National security and law enforcement capabilities would be diminished. To avoid repeating the lapses seen in semiconductor and 5G technology, the U.S. must proactively embrace digital assets to protect the U.S.’s lead in global financial technology.
2024-08-25T14:48:04.000Z
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