Yellen Urges Congress for Crypto Regulation

Yellen calls on congress for crypto regulation to tackle risks

US Treasury Secretary Janet Yellen has called on Congress to pass legislation that would provide a clear and comprehensive regulatory framework for cryptocurrencies and stablecoins. In her testimony before the House Committee on Financial Services on February 6, 2024, Yellen highlighted the potential risks posed by the rapidly growing and evolving crypto sector to the financial system and the economy.

Yellen cited the recent collapse of the crypto exchange FTX, which resulted in losses of over US$10 billion for investors and creditors, as an example of the need for more effective oversight of cryptocurrency markets. She also expressed concern about the use of crypto assets for illicit activities, such as financing terrorism and evading sanctions. According to a report by TRM Labs, TRON's USDT token was the most used crypto asset for ISIS funding in 2023.

Congress should establish legislation to regulate stablecoins and the spot market for crypto assets that are not securities, as well as enforce applicable laws and regulations. Yellen said in her prepared remarks.

Stablecoins are digital tokens that are pegged to fiat currencies or other assets and are widely used as a medium of exchange and a store of value in the crypto ecosystem. However, they also pose risks to financial stability, consumer protection, and monetary policy, as they are not subject to the same regulatory standards and oversight as traditional money. The spot market for crypto assets refers to the trading of cryptocurrencies for immediate delivery, which is largely unregulated and opaque.

Yellen also stressed the importance of addressing the climate-related financial risks from the crypto sector, as the energy-intensive process of mining and verifying transactions on some blockchain networks contributes to greenhouse gas emissions and environmental degradation. She urged financial regulators to enhance their assessment efforts and increase coordination around climate risks, as well as to promote disclosures that allow investors and financial institutions to consider these risks in their decisions.

Yellen's testimony reflects the Biden administration's proactive and rigorous approach to regulating the crypto industry, which has faced increasing scrutiny and challenges from various authorities and agencies. Despite her cautious and critical stance on crypto, Yellen also acknowledged the potential benefits and opportunities of the technology and expressed support for creating a strong regulatory framework with global collaboration rather than outright prohibiting the asset class.