US Stablecoin Regulation Feels Like Groundhog Day

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Number of the Week: 54% (explanation below)

US Stablecoin Regulation Feels Like Groundhog Day

If you never paid attention to what goes on in Washington, you might well be surprised—if not appalled—that 2024 has arrived and the United States still has no federal method for regulating stablecoins, which currently have a market capitalization of about $135 billion and underpin the worldwide cryptocurrency system. Back in July 2021, FIN noted that the nation’s highest financial officials—including Federal Reserve chair Jerome Powell—were sounding the alarm about the growth of stablecoins, and wrote “it seems abundantly clear that stricter U.S. regulation of stablecoins is imminent.”

Oops, and that’s because if you paid even occasional notice to what goes on in Washington, you might have a sense of why stablecoin regulation has gone nowhere. The more economically important a regulatory issue is, the greater the pressure for someone or some party to score it as a political “win.” In 2023, it—again!—really seemed like some form of stablecoin regulation was close to becoming law. The House Financial Services Committee released a bill in July to the full House, but it never came up for a floor vote. The Committee’s ranking Democrat, Maxine Waters of California, said that “Committee Republicans abruptly decided to move forward with a toxic and problematic bill that will pose even greater harm to consumers and risk to our financial system.” For his part, committee chair Patrick McHenry, Republican of North Carolina, blamed not committee Democrats but the Biden White House for the demise of the legislation.

Then add to that standoff the time-honored Washington molasses of lobbyists. A December Bloomberg story reported that the proposed stablecoin legislation had brought a “gush of lobbying money,” including from Tether, the issuer of the largest stablecoin, USDT.

What’s actually at stake here? There are at least two important areas to explore.