Syed Rahman summarises the key points in the United States’ Genius Act
The United States’ first national cryptocurrency legislation has been passed.
The Genius Act, which has been signed into law by President Donald Trump, can be seen as formal recognition of the crypto sector’s legitimacy – and a result of the sector’s lobbying of Congress regarding regulation.
The Act creates a regulatory regime for stablecoins. It is one of three pieces of crypto-related legislation that have been working through the US political system. Its supporters say it will give the crypto industry clear rules while also making sure the US stays at the forefront of the fast-evolving world of payment systems.
The Act’s provisions include requiring stablecoins to be backed one-for-one with US dollars or other low-risk assets. Those in favour of the Act also believe it could encourage more people to use cryptocurrency and, as a result, lead to the sector being viewed as part of the financial mainstream.
Risks
But its opponents say it will bring a new set of risks into the financial system by making stablecoins legitimate without providing consumers with adequate protections. They argue that tech firms are being allowed to engage in activities similar to those conducted by banks – but without being subject to the same levels of oversight that are faced by financial institutions.
There had been criticism that the Act was merely a way of legitimising President Trump and his family’s promotion of their own crypto coins. But it was supported by a sizeable number of Democrat politicians, who believed that the Act was better than nothing at all.
The US Congress had been expected to also pass the other two proposed crypto-related bills, but these have been subject to delays. They have both passed the House of Representatives but have yet to be passed by the Senate. One bill would prevent the US central bank from establishing a digital currency and the other would set up a regulatory framework for other forms of crypto.
Stability
Bringing legitimacy to stablecoins is likely to see increased market stability around these assets. Given that they are seen a conduit connecting traditional financial assets and decentralised assets – and are pegged to fiat currencies or commodities such as gold - they are much less volatile than cryptocurrencies such as bitcoin.
Certain companies, industries and even countries have tried to adopt the widespread use of cryptocurrencies. But, due to its volatility it can be very difficult to manage fiscal policies that involve them. Stablecoins, however, could resolve this issue; with this new act being a concerted move towards boosting market confidence.
The act, therefore, can be viewed (albeit with some caution) as a notable step forward for stablecoins and the cryptocurrency market as a whole. It now faces the challenge of quelling consumer concerns and increasing demand for these assets as the US looks for dominance in the sector.
