Important Steps (Forward) for Crypto
Cryptocurrency has taken several steps forward in the last month. On the financial markets side, Coinbase was formally included in the S&P 500 as of May 18. Though it is only .11% of the index, it is the 169th weighted stock and holds on its balance sheet some cryptocurrency. Further, as it is closely correlated to the price of Bitcoin (at least since 2023), a healthy number of investors own a small piece of the crypto economy.
Meanwhile, on the regulatory side, the Senate, while busy with other things, passed the Genius Act, which creates the first comprehensive framework for stablecoin (and thus cryptocurrency) regulation. As you will recall from Schoolhouse Rock, this is just the first step of 3 in passing a law, though the House bill, known as the Stable Act (it is hard to make this stuff up) is similar to the Genius Act, and the White House has signaled it will sign the legislation. The Genius Act provides for a federal or state regulatory system for insured depository institutions, nonbank issuers that are regulated by the OCC, or state qualified issuers. The legislation also creates an opening (or is it?) for public companies not predominately engaged in financial activities to issue stablecoins with the unanimous approval of a three-member committee consisting of the Secretary of the Treasury, the Federal Reserve Chair, and the FDIC Chair. Depending on how difficult this process is, the Genius Act could serve as an effective barrier to entry that allows large banks to develop stablecoins without competition from newer entrants.
The bill also requires that issuers maintain a 100% backing for the coins with segregated funds including USD and/or short-term treasuries, among other things, and excludes yield-bearing stablecoins from this legislative regime. In many ways, while the Genius Act is an important step in the legitimation (through legislation) of cryptocurrency, it also serves to create substantial barriers to innovation by putting in place a highly regulated (and thus pro-bank) blockchain based payment system.