Yesterday, Fed Chairman Jerome Powell reiterated his skeptical stance toward cryptocurrencies, telling lawmakers that he believes bitcoin has "failed" as a payment system, and that stablecoins should be subject to more restrictive regulations forcing them to be treated as bank deposits or money market funds.
The pace of stablecoin adoption has exploded over the past year, and authorities have apparently caught on to the fact that stable coins are an ideal vehicle for laundering money, given that stablecoins have all the advantages of bitcoin without the volatility. Stablecoin volume has climbed to $1.7 trillion in Q2, thanks to the coins use as intermediaries in cryptocurrency trades, according to the Tokenist.
This has mostly benefited the top three stablecoins: tether, USDCoin and Binance Coin, according to data a from JPM.
However, transaction volumes for the coins have declined in recent weeks, as CoinTelegraph reports, following a negative report about Tether from Fitch Ratings, and several governments' move to cut off access to Binance.
Ever since Powell made his comment about regulating stablecoins, reporters have clearly been sniffing around trying to learn more about what's actually going on. And on Friday, MarketWatch reported that Treasury Secretary Janet Yellen, Powell's former boss, has convened a meeting of the President's Working Group for Financial Markets - better known as the "Plunge Protection Team" though in this case their job is more like "plunge enforcement" - to discuss possible regulation of stablecoins, which play an increasingly important (and increasingly controversial), role in the cryptocurrency universe.
The working group will "discuss interagency work on stablecoins". It includes Fed Chair Powell, along with the heads of the CFTC and SEC. The session will also include the OCC and the FDIC.
Treasury confirmed the story:
"Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system," Yellen said in the statement.
"In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities."
As the FT explained in a story about Tether published earlier this week, tether - the most popular of the stablecoins - has long been suspected of shady dealing.
It has been all but proven that Tether doesn't have the full dollar reserves it claims to have, and as the FT reported, the company's CFO has already found himself in the crosshairs of NY AG Letitia James. The fact that the Feds are now "taking a look" at what's going on here is certainly telling.
Late last year, we explained in a post how Chinese oligarchs use tether to circumvent China's strict controls on money leaving the country by laundering it through the Macau casino money-laundering structure.
Fortunately for crypto traders, bitcoin is shrugging off the headlines and trades higher even after Treasury confirmed the meeting. Perhaps because this crackdown is coming from the US, which is seen as generally more accomodative to crypto than, say, China.