Senate takes big step toward regulating cryptocurrency

• The Senate Banking Committee gave an initial thumbs-up to the Genius Act, which would create a regulatory framework for the cryptocurrency known as stablecoins. The bill sets up licensing guidelines and creates reserve requirements, as well as other ground rules for those who want to issue payment stablecoins. 
• Supporters of the legislation say it will improve transaction efficiency, free up capital and drive U.S. Treasury demand. 
• Sen. Elizabeth Warren, D-Mass., opposed the bill, saying it does not sufficiently address issues in the current crypto marketplace.

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The Senate Banking Committee gave an initial thumbs up to the Genius Act, which would create a regulatory framework for the cryptocurrency known as stablecoins. The bill sets up licensing guidelines and creates reserve requirements, as well as other ground rules for those who want to issue payment stablecoins. 

Supporters of the legislation say it will improve transaction efficiency, free up capital and drive U.S. Treasury demand. 

“If we are going to have economic supremacy in the world, it requires for us to encourage, frankly, innovation before we stifle it with too much oppressive regulation,” Sen. Tim Scott, R-S.C., said. 

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According to Coinbase, stablecoins are a cryptocurrency with a stable value or price because they are directly tied to an asset, like the U.S. dollar. 

The Genius Act requires stablecoins to be backed at least one-to-one with reserves, including the U.S. dollar, Treasury notes or bonds or other approved assets. Those reserves must be held in a regulated state or federal institution. 

The act sets up rules and an application process for companies that want to become stablecoin issuers. 

There are also guidelines for how those issuers will be regulated –– those with more than $10 billion will fall under the Federal Reserve’s framework for depository institutions and the Office of the Comptroller’s currency framework. In comparison, those with less than $10 billion will be regulated at the state level.

The bill creates criminal penalties for misusing or misrepresenting stablecoins. 

It also clarifies that payment stablecoins are not backed by the U.S. government nor subject to deposit insurance from the FDIC. 

Sen. Elizabeth Warren, D-Mass., opposed the bill, saying it does not sufficiently address issues in the current crypto marketplace, like scams. 

“The bill even invites scammers into the market by refusing to prohibit people convicted of fraud and money laundering from owning stablecoin companies,” Warren said. “Sam Bankman-Fried could buy a stablecoin company from prison, and regulators would have no legal grounds to stop him.”

She also expressed concern that there aren’t enough national security protections. Criminal organizations like drug cartels and sanctioned nations use crypto to move money and make purchases that the global banking industry would otherwise block.

“Without changes, this bill will supercharge the financing of terrorism,” Warren said. “It will make sanctions evasion by Iran, North Korea and Russia easier, and it will help out international gangs that are moving fentanyl into the United States.”

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Republicans pushed back against Warren, saying her claims do not apply to the legislation and that it does not create any loopholes. 

“The Genius Act has gained this bipartisan support because it presents commonsense rules that protect consumers, promote competition and foster innovation,” Sen. Bill Haggerty, R-Tenn., said. “It’s time we provide the clarity and stability that our country and its innovators so desperately need.” 

The bill will now move on to the full Senate for more debate and a vote. The House also needs to approve the bill before the president can sign it.