Source: The New Yorker
Author: John Cassidy
Translator: BitpushNews Yanan
Last week, while the international community focused on the tensions between Iran and Israel, the cryptocurrency lobbying group in Washington quietly achieved a major victory. The founder and CEO of the stablecoin platform Circle, Jeremy Allaire, excitedly wrote on social media X: "We are witnessing a historic moment!" This excitement stemmed from the recently passed GENIUS Act by the US Senate, which not only paved the way for digital currency development but also formally confirmed the legal status of cryptocurrencies.
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Stablecoins are designed to anchor a value of 1 US dollar, thus experiencing far less price volatility compared to mainstream cryptocurrencies like Bit and ETH. However, stablecoins currently remain in a regulatory gray area - some (but not all) are viewed as securities by regulatory agencies and subject to securities laws.
Although the total market value of stablecoins issued by companies like Tether and Circle has exceeded 250 billion US dollars, large banks and traditional financial institutions have largely stayed away due to regulatory uncertainty and potential associations with illegal activities.
The GENIUS Act could fundamentally change this situation, promoting cryptocurrency integration into the mainstream financial system. The act explicitly defines stablecoins as payment tools rather than securities and establishes a set of rules that issuers must follow, introducing dual oversight from state and federal regulatory agencies.
The act was passed with support from 50 Republican senators and 18 Democratic senators. Allaire believes that although the bill still needs review in the House of Representatives, its final passage "will continue to drive US economic growth and enhance national competitiveness in the coming decades." Bill Hagerty, the bill's initiator and Republican senator from Tennessee, also issued a similar lengthy statement.
However, many public interest groups and opposing Democratic senators believe the bill's progress in the Senate primarily demonstrates the powerful influence of the cryptocurrency lobbying group, which has now established deep political connections on Capitol Hill and in the White House. Mark Hays, cryptocurrency and fintech deputy director of the Washington-based advocacy organization "Americans for Financial Reform," told me: "While the GENIUS Act is an important step, it is only the beginning of a large-scale experiment pushed by the cryptocurrency industry and its allies within the government, who are attempting to integrate cryptocurrencies into the economic and financial system without necessary regulatory constraints."
During President Biden's term, the cryptocurrency industry suffered significant setbacks, with multiple exchanges collapsing. Most notably, FTX exchange founder Sam Bankman-Fried was convicted on eight charges of fraud, including illegally misappropriating customer funds to his hedge fund. SEC Chairman Gary Gensler strongly criticized this, stating that the cryptocurrency market is "rife with fraud and manipulation." The SEC subsequently filed lawsuits against several industry giants, including Coinbase, the largest US cryptocurrency trading platform. A Pew Research Center survey from last year showed that over 60% of Americans have serious doubts about the safety of cryptocurrency investments.
However, in 2024, the cryptocurrency industry invested approximately 265 million dollars through three Super PACs to support pro-cryptocurrency candidates, successfully defeating several cryptocurrency skeptics, including veteran Democratic Senator Sherrod Brown from Ohio.
Bartlett Naylor, financial policy analyst at the consumer rights organization "Public Citizen," pointed out to me that last week's voting results show that the cryptocurrency lobbying group's "massive investment is beginning to pay off." "The cryptocurrency industry's political donations have not only successfully changed some politicians' positions," he added, "but have also intimidated many other legislators."
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Last month, the co-founder of World Liberty Financial revealed that their newly launched stablecoin will be used for a $2 billion investment plan. This investment is led by an institution related to the UAE government, targeting the world's largest cryptocurrency exchange Binance. Notably, Binance founder and Chinese billionaire CZ, who pleaded guilty to money laundering charges last April and was sentenced to 4 months in the US, is reportedly seeking a presidential pardon. In late May this year, the US Securities and Exchange Commission (SEC) announced the withdrawal of its civil lawsuit against Binance.
Two progressive Democratic senators - Jeff Merkley from Oregon and Elizabeth Warren from Massachusetts - as opponents of the GENIUS Act, have requested an investigation into the UAE-Binance transaction, claiming it may violate federal anti-bribery laws. Merkley and Warren had attempted to include stricter anti-corruption clauses in the bill but ultimately failed. Merkley bluntly criticized, "This bill is tantamount to Congress giving a green light for former President Trump to use government resources for personal gain."
The bill's proponents firmly deny these claims. Supporters emphasize that expanding stablecoin applications beyond cryptocurrency will bring significant economic benefits. Catalini, who was involved in Facebook's discontinued cryptocurrency project, pointed out that the most important advantage is enabling "faster, lower-cost global payments".
Catalini was referring to various online payments, from Etsy shopping to flight tickets and international remittances. The US payment infrastructure has traditionally been dominated by Visa and Mastercard, which operate their own networks and charge high fees to transfer customer funds. In recent decades, new payment services like PayPal and Klarna have emerged, but Catalini states that these services intentionally limit interoperability to maintain profit margins: you cannot transfer funds from a PayPal digital wallet to a Cash App wallet. Catalini firmly believes this will change in a world of online payments using stablecoins. Stablecoins exist on the blockchain (an anonymous distributed digital ledger, the basis of crypto transactions). "Wallets, fintech, and services will be interoperable by default," he said.
Recent reports show that several non-cryptocurrency giants, including Amazon, Walmart, and Meta, are considering issuing their own stablecoins, while financial institutions like Wells Fargo and Bank of America are exploring joint stablecoin initiatives. These developments indicate that stablecoin applications far exceed the cryptocurrency trading realm. "We will witness traditional enterprises and emerging challengers massively entering this market," Catalini predicted.
However, cryptocurrency critics remain skeptical. Corey Frayer, Investor Protection Director at the Consumer Federation of America, pointed out: "Essentially, these privately issued stablecoins will become part of the mainstream financial system. In the future, people might have to pay using Bezos Coin, Zuckerberg Coin, or Trump Coin, which would create enormous confusion. More importantly, these new 'dollars' cannot guarantee maintaining a constant $1 anchor value."
Frayer, who served as a crypto affairs advisor to SEC Chair Gensler during the Biden administration, specifically noted that stablecoin market prices have experienced significant volatility in recent years: In May 2022, Tether's stablecoin price dropped to $0.95; during the Silicon Valley Bank crisis in March 2023, Circle's USDC token fell below $0.87. At the time, due to limited connections between cryptocurrency and traditional banking systems, the impact of such fluctuations was relatively controllable.
However, Frayer warned that if stablecoins rapidly expand, depositing large amounts of funds into bank accounts, or banks issuing stablecoins themselves, a potential stablecoin bank run (where holders collectively demand cash redemption) could trigger a chain reaction of bank runs. "The GENIUS Act creates a transmission channel between the extremely unstable cryptocurrency ecosystem and the traditional financial system, which is extremely dangerous," Frayer emphasized.
Frayer further analyzed that the proliferation of stablecoins might cause the US financial system to repeat the "Wildcat Banking" era before the Civil War - when numerous private banks issued their own currencies, and businesses and depositors had to assess these currencies' credibility themselves. During that financially chaotic period, currency values fluctuated dramatically, with bank runs and failures occurring frequently. To end this chaos and raise military funds for the Civil War, the Lincoln government ultimately pushed through the National Banking Acts of 1863 and 1864. These acts not only imposed stricter capital and reserve requirements on banks but, more importantly, established a unified national monetary system.
Renowned economic historian and UC Berkeley Professor Barry Eichengreen shares Frayer's perspective. In his New York Times column last week, he warned: "The problems that plagued the dollar system in the 19th century are likely to replay in the stablecoin ecosystem." Discussing these historical lessons, Frayer said not without irony: "After experiencing so many painful lessons, we are actually regressing to the era of private monetary systems."
The current political acceptance of cryptocurrencies continues to expand - House Republicans are considering expanding the GENIUS Act's scope to further relax industry regulations. If this trend is not curbed, the term "ironic" might be an understatement.
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