US Moves to Regulate Digital Asset Transactions

Growing pressure from Congress for new laws to prevent crypto transactions from being used to circumvent financial sanctions on Russia has moved the establishment of a regulatory framework for digital asset transactions to the top of the federal agenda.

In an executive order that will be publicly signed as soon as today, President Biden ordered four federal departments—Treasury, Commerce, State and Justice—to review US policy on cryptocurrencies and deliver recommendations for a federal regulatory framework for crypto in three months.

One of the issues expected to be resolved by this policy review is a decision on whether the Federal Reserve should be given the green light to create a digital dollar.

The crypto policy review also will evaluate the potential impact on the US economy of new digital asset trading platforms, including platforms that trade tokenized real estate properties, and determine which federal agencies should regulate these trades.

Biden’s order for a full crypto policy review comes as Congress is moving to extend the Treasury Department’s sanctions enforcement authority to cryptocurrency exchanges.

Bills have been introduced in the House and Senate that would extend to crypto exchanges the Treasury Dept.’s Financial Crimes Enforcement Network’s (FinCEN) ability to require banks to surveil or cut off contact with entities suspected of money laundering.

“Strong enforcement of sanctions compliance in the cryptocurrency industry is critical given that digital assets, which allow entities to bypass the traditional financial system, may increasingly be used as a tool for sanctions evasion,” said Sen. Elizabeth Warren, a sponsor of one of the crypto regulation bills, in a letter on Monday to US Treasury Secretary Janet Yellen.

According to reports, new rules applying FinCEN enforcement to crypto exchanges are being drafted by the Treasury Dept. and could be enacted without Congressional authorization.

The focus on enforcement of Russia sanctions in crypto markets is expected to bring to a head an ongoing debate in Congress to establish regulations for digital assets that will preserve a competitive edge for the US in emerging crypto markets.

The United States is the global leader in Bitcoin mining, with more than a third of the cryptocurrency data mining’s global capacity.

Digital asset trading supporters say the transparency of crypto transactions is inherent in the blockchain technology used to create blocks of Bitcoins.

According to Salman Banaei, head of policy for the blockchain-tracking firm Chainanalysis, blockchains are effectively public records because they create a unique digital trail of every crypto transaction.

Another crypto defender, Jake Chervinsky of the Blockchain Association, said fears that Russia can avoid sanctions using digital assets are “unfounded.

“Crypto markets are too small, costly and transparent to be useful for the Russian economy. With Russia cut off from the world’s crypto industry, they can’t source nearly enough liquidity to matter,” Chervinsky said in a Twitter post, referring to Russia’s ban on Bitcoin mining.

Proponents of digital asset trading platforms conducting trades in tokenized real estate assets also stress the transparency of these transactions.

They say tokenized real estate makes transactions easier to track, giving auditors a higher degree of confidence in data accuracy than conventional property deals and driving down transaction costs by replacing piles of paperwork with digital “smart contracts.”