Securities and Exchange Commission Chair Gary Gensler said July 21 that securities regulations apply to platforms that offer crypto tokens or other products that are priced off the value of securities and operate like derivatives.
In prepared remarks, Gensler told the American Bar Association Derivatives and Futures Law Committee that any virtual product that provides synthetic exposure to underlying securities is implicated by securities laws and needs to work within the nation’s securities standards. He noted the SEC is developing rules on security-based swap execution facilities to fit with existing swaps rules established by the Commodity Futures Trading Commission.
The Independent Community Bankers of America says banks should explore cryptocurrencies. While estimates show only 8 percent of Americans own cryptocurrency, 81 percent are familiar with it.
“Cryptocurrency is gaining ground with your customers,” the ICBA stated. “Forty percent of Americans who have heard of cryptocurrency believe it will be widely accepted as a payment type in the next 10 years. What’s more, 35 percent of Millennials familiar with crypto assets report having purchased them in the past year. Your competitors are embracing cryptocurrency.”
There are other indicators of cryptocurrency’s increasing prevalence: PayPal recently announced that it will support cryptocurrency transactions. JPMorgan Chase has created its own digital currency, JPM Coin. Visa launched the Coinbase Visa debit card, which allows customers to spend digital assets where Visa is accepted and in nine different cryptocurrencies. Globally, the International Monetary Fund estimates more than 50 countries are researching or developing a central bank digital currency. China has tested the DC/EP (digital currency/electronic payments) in three cities, and the Bahamas and Cambodia successfully launched central bank digital currencies. El Salvador announced in June it would begin accepting bitcoin as legal tender later this year.
The Federal Reserve is exploring different forms of a central bank digital currency. The Federal Reserve Bank of Boston is collaborating with the Massachusetts Institute of Technology to investigate the potential of a digital dollar.
According to the American Bankers Association, market capitalization of cryptocurrencies reached a record $2 trillion this year and there are nearly 10,000 different cryptocurrencies. The price of bitcoin jumped to a six-week high Monday, amid speculation that Amazon.com, Inc., could venture into digital currency.
North Dakota Bankers Association Director Rick Clayburgh noted a few companies are conducting research on the emerging market. He said many questions remain on the mainly unregulated cryptocurrency market. He isn’t sure what role cryptocurrency will play in the financial market nor the timeline.
“It’s probably really early on in that whole process,” he added.
According to the ICBA, there are several benefits and risks associated with cryptocurrency.
Benefits
- More than half of millennials familiar with cryptocurrency say it will become widely accepted for legal transactions before 2030. Community banks can remain relevant in the crypto age by helping to protect their customers’ assets through education or by considering a custodial role for account holders’ digital assets.
- Market leader status: The global cryptocurrency market is projected to reach $5.5 billion by 2027.
- New product offerings: From enhanced security and the potential for more efficient global transactions to the chance to serve the unbanked in a new way, cryptocurrency shifts the way the public thinks about payments and could open doors to new opportunities.
Risks
- Money laundering: “Mixing,” “tumbling,” “chain hopping” and other related schemes facilitate criminal activities for fraudsters.
- Ransomware attacks: Beyond illicit activities, cryptocurrencies have been used to sidestep regulators and subvert sanctions, making it a potential global threat. Analysts estimate cryptocurrency demand has contributed to $1.4 billion in ransomware attacks.