Newly confirmed US Treasury Secretary Janet Yellen is now tasked with the daunting responsibility of regulating cryptocurrency — hopefully without stifling innovation.
Janet Yellen won the US Senate’s approval to become the Treasury Secretary on Jan. 25, 2021 — making her the first woman to hold this position. Yellen succeeds Steven Mnuchin, a former investment banker that rose to prominence as a Wall Street investment banker.
As the former Chair of the Federal Reserve in 2017, Yellen has been fairly vocal about the strengths and demerits of cryptocurrencies. At the time, she expressed some skepticism on Bitcoin, calling it a “highly speculative asset.” When asked about possible regulation, Yellen simply said that the Federal Reserve had little interest or capability in doing so.
More recently, Yellen has expressed interest in a framework that invites innovation in the space, while still having regulatory oversight. However, she’s given mixed messages on the subject so far.
On one hand, the Treasury Secretary has stated that cryptocurrencies are primarily being used for illicit financing. However, she has also advocated for the responsible and legitimate use of digital currencies. A legal framework is also forthcoming under her leadership, according to a 114-page response sent to the Senate Finance Committee.
The document also included Yellen’s comments on opportunities for the US in the digital asset space. China’s forthcoming yuan digital currency, for example, may require the administration to make sweeping changes to the way international transactions are monitored and treated.
Yellen to Review Frozen Crypto Wallet Identification Rule
It remains to be seen how the Treasury will react to the booming cryptocurrency market under Yellen’s watch. Over the past few years, the Treasury has become increasingly hostile towards the cryptocurrency asset class. In 2019, former Secretary Steven Mnuchin warned that he was “going to make sure” that Bitcoin doesn’t turn into the equivalent of Swiss bank accounts — an anonymous transaction haven.
Then, only a few months ago, Mnuchin rushed to propose a new cryptocurrency bill. This would require users to associate their identity with independent wallets. Under such a rule, users holding cryptocurrency within offline wallets would no longer be able to transact anonymously and privately.
While the Treasury claimed that the regulation would curtail money laundering, terror financing, and other illicit activity, crypto proponents disagreed. They reasoned that compliance with such a rule would put an unprecedented burden on digital asset startups. Furthermore, it would stifle the growth of the crypto ecosystem in the US, driving entrepreneurs to other regions.
To the relief of many in the cryptocurrency industry though, the proposed wallet rule was frozen after Joe Biden took office. Biden’s new appointees, including Yellen, now have at least 60 days to review the regulation, starting Jan. 20, 2021.
A Long Road
Yellen has agreed though that any regulation will require considerable consultation with experts. However, she has not completely ruled it out just yet.
Besides Yellen’s cryptocurrency-related agenda, all eyes are on the approval of the $2 trillion US stimulus package. If approved, Bitcoin and other cryptocurrencies will likely see growth similar to July 2020 — when the first stimulus was announced. However, with both parties divided on the amount, Yellen has a tough road ahead of her.