All eyes are on President Biden's Securities and Exchange Commission (SEC) chair nominee, Gary Gensler, after he promises the agency will try to provide long-sought clarity on rules of the road for cryptocurrency.
A former head of the Commodity Futures Trading Commission (CFTC) and a professor who lectures on blockchain and cryptocurrencies at the MIT Sloan School of Management, Gensler is well positioned to lead the effort.
- "Gensler would bring to the job a high degree of knowledge about crypto, and I think that's helpful for someone trying to regulate in this space," SEC commissioner Hester Peirce told Reuters.
Gensler's chief focus, at least at first, is likely to be separating currencies that should be treated as securities and subject to SEC regulation and those that, created by individuals as trading tokens, wouldn't be.
"It's important for the SEC to provide guidance," he told the Senate Banking Committee earlier this week during his confirmation hearing.
The oldest and most widely traded cryptocurrency, Bitcoin, would be unlikely to be subject to securities regulation, although nothing is certain until final guidelines are published.
Bitcoin was created in 2008 as an open-source, peer-to-peer trading mechanism without a central bank or single administrator.
The coin's value dropped after Gensler's hearing on Tuesday out of fear it could be lumped in with other cryptocurrencies, but based on past SEC action, that's not likely to happen. The agency has said it doesn't consider Bitcoin a security.
Currencies such as Ripple that are created by companies to provide an equity interest in a business are the ones more likely to be subject to SEC oversight. That's based on what's known as the Howey test, named after a 1946 Supreme Court ruling, which looks at what constitutes an investment contract.
As a lecturer on the topic, Gensler would be well-versed in the test, business writer Roya Wolverson says in Quartz. He would be expected to use it as a baseline should he be confirmed and undertake what would be the federal government's first major attempt to regulate the currency.
Traders and investors and others would likely welcome a regulatory framework to help stabilize the market.
"Industry has been pretty clear they would like more regulatory certainty," Matthew Kulkin, co-chair of Steptoe & Johnson's Financial Services Group, told Reuters.
Timing is increasingly important. Although the currencies remain mostly a novelty to many, more companies are starting to take them seriously, especially after high-profile companies such as Tesla and Mastercard have said they're ready to embrace them.