Cryptocurrency Will Change Under New Law Introduced

(PresidentialInsider.com)- On Tuesday, New Jersey Democrat Congressman Josh Gottheimer unveiled an early draft of his proposed legislation to place definitions around stablecoins which some cryptocurrency critics believe are susceptible to manipulation and collapse.

In a “discussion draft” of the legislation released on Monday, Gottheimer’s office aims to designate certain digital currencies that can be redeemed on a one-for-one basis for US dollars as “qualified” stablecoins.

These “qualified” stablecoins could either be issued by a federally-backed bank or a non-bank that agrees to maintain at least 100 percent reserve assets consisting of US dollars, US debt, or any other assets deemed appropriate cash collateral by the Office of the Comptroller of the Currency.

Congressman Gottheimer said on Monday that he doesn’t believe the government should “stifle innovation in the cryptocurrency market.” This draft legislation will likely be the first of many attempts by US lawmakers to structure the market.

Gottheimer’s plan has the support of Nellie Liang, an undersecretary of the Treasury leading regulatory efforts of the cryptocurrency market. The congressman said his office has been “very engaged” with both the Treasury and the Blockchain Association.

In recent years, stablecoins have grown in popularity with proponents arguing they are a bridge between the ease and speed of the more-volatile cryptocurrencies and the stability of national currencies like the US dollar.

Many stablecoin issuers back up the value of the digital token with a pool of dollars, but it isn’t always clear whether they can guarantee 100 percent of redemption requests for traditional currencies. Because of this, some policymakers worry that a stablecoin “run” could result in bankruptcy for the issuer and begin a domino of insolvency.

Gottheimer’s proposed legislation seeks to address that concern.

In November, as a way to prevent such “systemic risk,” the Biden administration’s Working Group on Financial Markets recommended restricting the issuance of stablecoins only to banks insured by the FDIC.

However, those in the industry balked at the recommendation, arguing that some of the world’s most popular stablecoins are issued by firms that are not banks.