The Cryptocurrency Act of 2020: Is It a Feasible Framework?
Earlier this year, the world of crypto experienced a large market crash due to the economic instabilities caused by COVID19. The pandemic led to large fluctuations in the price of Bitcoin, causing many to see it as an opportunity to finally invest in the popular cryptocurrency.
During the same time, the cryptocurrency act of 2020 was released as well. The bill explains which federal agencies will be responsible for the regulatory framework of what type of crypto assets.
The introduction of the bill came less than a month after the Trump administration released its proposed budget allocation, in which the topic of cryptocurrency is briefly mentioned. According to the proposal, regulations are expected to tighten up in the coming year, as Bitcoin continues to become more mainstream.
So what is the cryptocurrency act of 2020 all about, and how will it affect the way we currently use cryptocurrency and buy bitcoins? In the following chapters, we will discuss the highlights of the report, and share our thoughts on them.
Table of contents
- Cryptocurrency act of 2020 – The highlights
- What does this mean for crypto? Is Bitcoin dead?
- Will the US catch up?
- So is Bitcoin here to stay?
- Wrapping up
- Frequently Asked Questions
Cryptocurrency act of 2020 – The highlights
US lawmaker Paul Gosar introduced the crypto-currency act of 2020 with the premise that America should remain the global leader in the field of cryptocurrency. He noted that the US can continue to grow as a result of the industry’s spread to emerging and developing markets.
But how does this translate into actual crypto regulation? Well, that is exactly what the cryptocurrency act is all about. Here are the highlights you need to keep in mind, especially if you are a US resident:
- The bill splits differentiates crypto assets by splitting them into 3 different types: (1) crypto-commodities, (2) crypto-currencies, and (3) crypto-securities.
- It proposes that crypto-commodities need to be regulated by the Commodity Futures Trading Commission (CFTC)
- It further proposes that crypto-currencies are under the supervision of the Financial Crimes Enforcement Network (FinCEN), as well as the Controller of the Currency.
- Finally, it proposes that crypto-securities and “synthetic stablecoins” need to be overlooked by the Securities and Exchange Commission (SEC).
Note that, according to the act, “synthetic stablecoins” are all the cryptocurrencies that represent a currency issued by the USA or another government. These virtual coins are to be collateralized on a 1:1 ratio with such FIAT currencies, which will be deposited in an insured depository institution. Examples of such coins include Tether (USDT), and USD Coin (USDC).
To understand the details of the currency act in more detail, make sure you check out the following video:
What does this mean for crypto? Is Bitcoin dead?
Far from it! The cryptocurrency act of 2020 acts as a bridge between the “wild west” of crypto and the regulatory parties that keep an overview of financial markets. Shortly after the bill was introduced, more institutions and celebrities started allocating significant amounts of money, as they saw the potential for further growth. These events are also partially responsible for the rapid growth in Bitcoin’s price.
So, is Bitcoin dead? Certainly not! However, the US is known for its notorious willingness to keep a tight loop on every new emerging technology that could affect financial markets. Bitcoin regulation is far harsher for US residents than it is for most countries. For that reason, Paul Gosar’s statement that “America currently is a global leader in the field of cryptocurrency” is far from true. All one needs to do is look at the facts.
The government categorically shut down Facebook’s Libra just over a year ago, without giving any specific reason for doing so. The project is still on temporary hold awaiting a final answer from congress.
Adding to that, Bitcoin analyst Antony Pompliano went on CNBC over a year ago to point out the importance of digitizing the US dollar for America to stay ahead of its competitors in the crypto revolution. Due to the lack of public awareness and unwillingness to innovate, there is still no established government cryptocurrency, and China seems to be getting ahead of the race.
I went on CNBC almost a year ago and said that the US must digitize the dollar immediately.
Nobody listened and now the US is behind China.
It ultimately won’t matter though because people will choose Bitcoin.
— Pomp 🌪 (@APompliano) October 19, 2020
Will the US catch up?
At the moment, the future of America is covered with a huge haze of uncertainty. With the second lockdown being upon us, and the results of the recent presidential election, the only opinions are either biased or subjective.
Within the cryptocurrency act of 2020, Rep. Gosar mentions that “it is the role of the government to create an environment where bold ideas can work for the American people”, something that is not often seen when it comes to technological advancements. He added that, by supporting the newly drafted bill, “America will be at the center of the future of commerce, banking, trade, and more”. This sounds a lot like Anthony Pompliano’s advice that went unnoticed back in 2019.
Will the government finally act upon these recommendations and build an ecosystem to support this technological innovation? It certainly seems so when looking at the new formation of the senate. Just recently, congresswoman and Bitcoin advocate Cynthia Lummis won a senate seat representing Wyoming. We expect to hear more news of this nature as Bitcoin continues to climb in value within 2021.
Overall, the US and other governments are now well aware of how cryptocurrencies are reshaping our financial system. Even though more regulations and bitcoin laws seem like bad news for most investors, they are the driving force that will help the technology disrupt many industries, helping it go mainstream along the way.
So is Bitcoin here to stay?
The growing interest of financial institutions, large scale investors, as well as corporations indicates that Bitcoin is no longer a purely speculative asset. Its features and characteristics make it a great store of value that more and more people seem to promote as inflation rates continue to grow. So even believe that the popular cryptocurrency could replace gold at some point in the next decade. If this were to happen, not only would Bitcoin trade closer to $500.000 per coin, but regulations would become much tighter.
“It’s hard to say whether it’s [#btc] worth the price it is trading at today. But do I think it is a durable mechanism that–do I think could replace gold to a large extent? Yeah I do, because it’s so much more functional,” says BlackRock’s Rick Rieder. #bitcoin #cryptocurrency. pic.twitter.com/ipwr22xwZ1
— Squawk Box (@SquawkCNBC) November 20, 2020
The main concern at this point, given that money printing, continues at its current rate, is how the cryptocurrency act of 2021 will look like. Will, there be an increase in capital gains taxation for those that simply HODL their coins, and how will traders have to adapt based on this? With 2020 coming to an end we can now clearly see that Bitcoin is entering into a stage of maturity, and those who manage to see this will be rewarded accordingly.
In this article, we explored the highlights of the most recent crypto act of 2020 and briefly discussed where we’re headed. While there is still a lot of uncertainty to account for, Bitcoin is becoming less of a “high risk” investment, and more of a “lifebuoy” for the average investor.
To summarize the key points of the cryptocurrency act, here is what you need to remember:
- The bill splits digital assets into crypto commodities, cryptocurrencies, and crypto securities.
- Each of the 3 categories is regulated by a different federal agency.
- While the bill may initially seem like bad news, it actually brings us one step closer to mainstream adoption and an increase in cryptocurrency prices.
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Frequently Asked Questions
If the information in this article sounded a little too complex to understand, don’t worry. In this section, we will answer all of the questions that you may have with regards to the cryptocurrency act of 2020.
What is a (crypto) commodity in the context of investing?
When talking about crypto commodities in terms of investments, we refer to a tradable and fungible asset that represents some form of utility or commodity in the blockchain. Its quality and standards tend to fluctuate depending on market conditions and grading mechanisms. To learn more about the specifics and background of crypto commodities, make sure you read this article.
What is a (crypto) security in the context of investing?
Securities are somewhat similar to commodities in the fact that they are exchangeable and utilized within a blockchain. However, they are not the same. SEC chairman Jay Clayton mentioned that each project undergoes the Howey test – a framework to determine whether a cryptocurrency is an investment contract (security). Several factors come into play when making this decision. For example, when an ICO delivers its tokens to users who do not expect the development team to carry out their promises, the concept of an investment contract is no longer valid, and thus the project is no longer considered to be a security. This also means that projects can change in nature over time.
Are there any other “pro-Bitcoin” politicians?
Yes, at the moment of this writing there are at least a dozen US politicians that are vocal about Bitcoin’s potential in the technological future. You can read more about those politicians and their background by reading this article. It is believed that there will be more politicians added to this list in the coming year.
Could we eventually see Bitcoin-fueled retirement plans as well?
Given the fact that regulations are tightening in the world of crypto, there is a very likely scenario that we will see pension funds and retirement plans being fueled by cryptocurrency. We may also see a diversification towards cryptocurrencies among other investment options. And this is already starting to happen.
After testing for more than a year, US-based investment adviser Digital Asset Investment Management (DAiM), has introduced what is more commonly known as employer-sponsored retirement plans in Bitcoin. The retirement plan aims to pursue companies to place a small amount of Bitcoin in a savings account each month, to collect a significant amount of value by the time an employee retires. For those starting right now, this alternative way to gradually build exposure in Bitcoin could lead to massive wealth and is thus worth considering. That being said, there is still a significant amount of risk in play, given that the protocol would have to keep running without any issues for decades to come.
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