Investing.com – The total market capitalization of cryptocurrencies fell from more than $3 trillion at one point to $1.2 trillion on Friday since hitting an all-time high in November 2021. After briefly dipping below $18,000 over the weekend, Bitcoin has recovered to the $20,000 level, and government incentives to regulate the cryptocurrency appear to have waned along with its price.
Lower valuations reduce systemic risk to the U.S. and global financial system, but the current slump may be the perfect time to establish regulations. Meanwhile, an SEC commissioner recently said regulators need to address emerging asset classes to encourage innovation and protect consumers and market participants.
This month, the usually slow-moving U.S. Senate unveiled a broad legislative proposal targeting cryptocurrencies and other digital assets.
Cryptocurrencies keep falling
Rising interest rates have weighed on stocks and bonds, and cryptocurrencies have not been spared. Over the weekend, Bitcoin and Ethereum fell to new recent lows, continuing a bearish trend that began in November 2021.
The chart shows that Bitcoin fell below $20,120, a level not seen since December 2020.
Ethereum fell below $1,015 per coin on June 15, its lowest price since January 2021, and the overall trend remains bearish.
Comprehensive regulation gains bipartisan support
Sen. Kirsten Gillibrand, Democrat of New York, and Sen. Cynthia Lummis, Republican of Wyoming, have joined forces in the broadest legislative proposal to regulate cryptocurrencies and other digital assets .
The bill, which they call the “Responsible Financial Innovation Act,” outlines the legal definition of digital assets and virtual currencies, will require the IRS to introduce guidance on merchants accepting digital assets and charitable donations, and classify digital assets as commodities and Securities, which have been a grey area for the asset class.
The proposal comes after U.S. President Joe Biden issued an executive order in March urging the Federal Reserve to study whether it would create a digital dollar. The order also directs federal agencies, including the Treasury Department, to study the impact of cryptocurrencies on financial stability and national security.
U.S. Treasury Secretary Yellen said:
We have a keen interest in ensuring that innovation does not lead to fragmentation of the international payments architecture.
The finance minister warned that government regulation needs to monitor the proliferation of cryptocurrencies and deal with fraudulent or illegal transactions.
While the value of cryptocurrencies is falling and the Senate will consider proposals from Gillibrand and Ramis, crypto lobbying has become a thriving business in Washington. The number of cryptocurrency lobbyists increased from 115 in 2019 to 320 in 2021.
During this period, spending focused on crypto lobbying increased from $2.2 million to $9 million, with the bulk of the funding coming from Coinbase Global Inc (NASDAQ: ), Ripple and the Blockchain Association. Several former high-profile government officials from across parties have joined the ranks of cryptocurrency lobbyists as Washington begins to build a regulatory framework for the asset class.
Potential market expansion
The addressable market for cryptocurrencies has grown as mainstream investors look to add cryptocurrencies to their investment portfolios as the asset class has grown tremendously. In May 2022, JPMorgan generalized cryptocurrencies to replace real estate, calling them “the asset of choice,” arguing that they were undervalued.
Analysts at JPMorgan Chase said the recent decline has further undervalued bitcoin, ethereum and many of the nearly 20,000 cryptocurrencies.
More and more fund managers are adding exposure to cryptocurrencies in their portfolios, and hedge funds have been active in the market. Although the price of cryptocurrencies has fallen, the overall market has expanded as it has become more mainstream accepted.
While custody, security and regulation remain important risk factors for the crypto asset class, perhaps the biggest hurdle is government control over the money supply.
Expanding and contracting the money supply to influence economic trends is a powerful tool. A growing cryptocurrency market will suck away the ability of governments to manipulate the money supply as it dilutes the status of fiat currencies with the rest of the world.
While lawmakers, regulators and governments in Washington have not explicitly attacked cryptocurrencies as challengers to the power of fiat money, the truth is that the rise of cryptocurrencies will be the decline of fiat currencies. While governments can intervene and manipulate cryptocurrencies, they can be more difficult to control than fiat money markets. Furthermore, the ideological philosophy that supports cryptocurrencies is libertarianism, which advocates returning the power of the money supply to individuals. Therefore, government resistance is inevitable.
The Senate initiative on cryptocurrencies may only be rhetorical and could face significant resistance in the weeks and months ahead.
[This article is from Yingwei Caiqing Investing.com, to read more, please log on to cn.investing.com or download Yingwei Caiqing App]
(Translation: Pan Yiheng)