Stablecoins have emerged as Bitcoin’s boring cousin, offering what traditional cryptocurrency cannot: price stability. The head of the Federal Reserve, Jerome Powell has suggested that the Fed is looking into regulating stablecoins, a class of cryptocurrencies that are designed to have a stable value. This could mean that issuers of stablecoins will have to keep a reserve of fiat currency like the U.S Dollar, ensuring that the value remains stable. Such regulations already exist for money market funds and will likely require significant spending on the part of stablecoin issuers.
Powell has previously expressed skepticism about the ability of stablecoins to maintain their relevance in the face of the Fed’s tentative plans to issue its own digital currency, the digital dollar. Over the past year, the Federal Reserve has been conducting research efforts aimed at understanding the deployment process and potential applications of a government-backed digital currency. So far, Fed officials are split on how to proceed, with some doubting whether a digital dollar would bring a true value-add to the current financial system. The need to curb unregulated digital currencies and eliminate the associated risks has been cited by the pro-digital dollar camp as a reason to proceed.
The regulatory tightening around stablecoins suggested by Powell is in line with the overarching trend of U.S government attitudes towards cryptocurrencies. Gary Gensler, chair of the U.S Securities and Exchange Commission has recently made comments about the need for regulation of cryptocurrency exchanges and asked congress to give the SEC broader oversight over the industry. Gensler justified this with the necessity to protect investors from fraud in the industry that he dubbed as the “wild west” of finance”
As uncertainty looms over the industry, investors hold their breaths and wait to see how stable their stablecoins will prove to be amid the winds of the regulatory storm.
More details in the Motley Fool article on the subject.
Overview by Sam Klebanov, Research Analyst at Mercator Advisory Group
