As cryptocurrency rises, officials don’t want U.S. to be ‘left behind’
The first quarter of 2021 has brought a wave of announcements of major financial-services firms adopting cryptocurrencies.
This tide is unlikely to turn, so the public conversation is increasingly focusing on how to regulate these digital currencies, which include the popular Bitcoin.
Ray Dalio, founder of Westportbased Bridgewater Associates, the world’s largest hedge fund, has surmised about a potential ban, while some of the state’s elected officials are grappling with their roles as industry watchdogs.
“I think inevitably we’re going to get drawn more drawn into it,” U.S. Rep. Jim Himes, D-Conn., a member of the House Committee on Financial Services, said in an interview. “This is not something we’re going to be able to ignore.”
Visa announced Monday that it would become the first major payments network to allow customers to settle transactions with USD Coin, a “stablecoin” cryptocurrency whose value is linked directly to the U.S. dollar.
Two days later, CNBC reported that Goldman Sachs was “close to offering its first investment vehicles for Bitcoin and other digital assets to clients of its private wealth management group.”
In recent weeks, other financialservices headliners such as BNY Mellon, BlackRock and Mastercard have made their own cryptocurrency announcements.
At the same time, cryptocurrencies have gained powerful backers such as Elon Musk, Tesla’s chief executive officer. He announced March 24 on Twitter that customers could buy his company’s electric vehicles with Bitcoin.
There is no universal definition of cryptocurrencies, but there are widely accepted descriptions.
“A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double spend,” according to the definition on investopedia.com. “Many cryptocurrencies are decentralized networks based on blockchain technology — a distributed ledger enforced by a disparate network of computers.”
Among Connecticut-based financial-services companies, Greenwich-headquartered Interactive Brokers Group allows customers to trade Bitcoin futures. It does not allow cryptocurrencies for transactions such as account funding or paying commissions.
Connecticut-based banks are taking a cautious approach. In a statement, Waterbury-headquartered Webster Bank said that “we currently are not accepting cryptocurrency as a form of payment.”
Other major financial-services providers were more tight-lipped.
Messages left this week for Stamford-based Synchrony, the country’s largest provider of private-label credit cards, and Bridgeport-based People’s United Bank, which announced last month that it would be acquired by M&T Bank, were not returned.
Himes said that he understands why cryptocurrencies are gaining momentum in financial services. But he also has major concerns about their potential misuse related to criminal and terrorist acts.
“One reason to be constructive and open about cryptocurrency is you don’t want the United States to be left behind,” said Himes, a seventh-term Congress member, who worked for 12 years at Goldman Sachs. “You don’t want the United States dollar replaced as a reserve currency by somebody else’s digital currency.
“But I struggle with what the ‘killer app’ is. If you want to talk about crowdfunding, I get really excited because it’s a new way of raising capital for restaurants and car washes. But what’s the equivalent in cryptocurrency — ‘law enforcement can’t see what I’m doing’? How excited am I supposed to get about that?”
The rise of cryptocurrencies has sparked concerns about a possible regulatory backlash.
“Every country treasures its monopoly on controlling the supply and demand. They don’t want other monies to be operating or competing because things can get out of control,” Ray Dalio, founder of Westport-based Bridgewater Associates, the world’s largest hedge fund, said in a recent interview with Yahoo Finance Editor-in-Chief Andy Serwer. “So I think that it would be very likely that you will have it under a certain set of circumstances outlawed the way gold was outlawed.”
Bridgewater officials were not immediately reached to comment in response to an inquiry from Hearst Connecticut Media seeking more information about Dalio’s position on the regulation of cryptocurrencies.
The U.S. Securities and Exchange Commission has not enacted cryptocurrency-specific rules.
“Bitcoin and other cryptocurrencies brought new thinking to payments but raised new issues of investor protection we still need to attend to,” Gary Gensler, President Joe Biden’s nominee for SEC chairman, said during a March 2 Senate Banking Committee hearing, Reuters reported.
Gensler also said in the hearing that “it’s important for the SEC to provide guidance and clarity… Sometimes that’s a clarity that will be a thumbs up, but even if it’s thumbs down, it’s important to provide that.”
A message left for the state Department of Banking inquiring about the extent of its cryptocurrency regulation was not returned.
In response to Dalio’s comments, Himes said that he agreed that the “United States gets massive benefits from having the dollar being the reserve currency.” He was more skeptical about the prospect of a government clampdown on cryptocurrencies.
“I’m not sure you could prohibit a cryptocurrency, especially in a country like the United States,” Himes said. “I don’t know that that’s either technologically or politically feasible.”