2024 Crypto Regulation: A Look at the Potential Obstacles and Setbacks

As 2023 draws to a close, the cryptocurrency market has navigated through tumultuous events, from high-profile legal cases like the trial of former FTX CEO Samuel Bankman-Fried to significant leadership changes, including the stepping down of Binance’s former CEO, Changpeng ‘CZ’ Zhao. In the US, the crypto landscape has been particularly affected by the seizure of billions of dollars due to criminal charges and wire fraud allegations.

In light of these developments, calls for comprehensive crypto regulation have intensified, with many viewing it as a crucial need for the market in 2024. However, despite the pressing demand, industry experts express low expectations for legislative action in the coming year.

Significant Legislative Proposals of 2023

2023 witnessed the introduction of two major crypto-related bills by Republican lawmakers, highlighting the growing attention to cryptocurrency regulation.

1. H.R. 4766: Clarity for Payment Stablecoins Act
   This bill proposes a detailed regulatory framework for stablecoins, emphasizing redeemable variants. Key aspects include mandatory reserve holdings, restrictions on acceptable assets, and transparent redemption procedures. It envisions a dual oversight system, balancing federal and state jurisdiction, and addresses the role of subsidiaries of insured depository institutions. The bill also introduces a moratorium on specific stablecoins and outlines regulatory powers for both federal and state entities.
2. The Lummis-Gillibrand Responsible Financial Innovation Act
   This bipartisan bill aims to establish a comprehensive digital asset policy in the US. Noteworthy provisions include mandatory CFTC registration for crypto exchanges, limitation of stablecoin payments to banks or credit unions, and stringent penalties for violating anti-money laundering laws. It emphasizes consumer protection, mandating segregation and third-party custody to avert another FTX-like scenario. The bill also proposes significant funding for regulatory agencies and incorporates crypto assets into existing financial taxation and reporting frameworks.

Challenges and Outlook for These Bills

Both bills face a complex legislative journey, encountering diverse challenges:

• The stablecoin bill has met with opposition, notably from the White House and former Chair Maxine Waters. Waters’ support is seen as pivotal for the bill’s progress, potentially influencing the stance of Senate Banking Committee Chair Sen. Sherrod Brown.
• The Lummis-Gillibrand Act, while encompassing broader financial innovation concerns, confronts a challenging path, with only a 25% predicted chance of passage in 2024. Key hurdles include potential SEC resistance and the uncertain position of Sen. Brown.

Market analysts currently estimate a 60% to 75% likelihood of the stablecoin bill’s passage in 2024, subject to the stance of SEC Chair Gary Gensler and potential legal challenges. The introduction of spot bitcoin ETFs could also be a critical factor, potentially aiding in legitimizing the crypto sector and fostering substantive legislative action.

2024: A Year of Expectations and Uncertainties

The coming year is poised to be significant for crypto regulation, with several factors influencing the legislative landscape:

• The SEC’s Staff Accounting Bulletin No. 121 will be under congressional review, impacting how customer crypto holdings are recorded.
• The 2024 elections could play a crucial role, potentially affecting the direction and momentum of crypto-related legislation.

As the cryptocurrency sector continues to evolve, the industry remains in anticipation of regulatory clarity. The outcomes of these legislative efforts are set to shape the future of digital assets in the United States, marking 2024 as a potentially transformative year in the realm of crypto regulation.