A U.S. federal panel has urged Congress to implement tighter regulations on cryptocurrency markets, setting the stage for a potential overhaul as president-elect Donald Trump prepares to re-enter the White House.
The Financial Stability Oversight Council (FSOC), chaired by Treasury Secretary Janet Yellen, has recommended legislation granting financial regulators greater authority over the spot market for crypto assets not classified as securities. The panel also called for a federal framework to oversee stablecoin issuers, highlighting the risks posed by these digital currencies.
Stablecoins, typically tied to real-world currencies like the U.S. dollar, are seen as less volatile than other cryptocurrencies but still pose systemic risks, according to the FSOC. “Stablecoins could be vulnerable to runs,” the council stated, emphasizing the need for appropriate risk management standards to safeguard financial stability.
The FSOC includes members such as Federal Reserve Chair Jerome Powell and other top U.S. financial regulators. Its annual report, released on Friday, outlined growing concerns over the intersection of emerging technologies and financial systems.
Yellen, addressing these issues in a speech ahead of the report’s release, noted that digital assets and artificial intelligence (AI) could bring significant benefits, such as improved efficiencies, but also warned of associated risks. “Despite their potential, digital assets and AI bring financial risks, cyber risks, and risks from third-party service providers,” she said.
She stressed the need for interagency collaboration to monitor systemic risks linked to AI in financial services while promoting innovation. “We recommend building further interagency expertise to analyse and monitor potential systemic risks,” Yellen added.
Beyond cryptocurrency and AI, Yellen highlighted risks in the commercial real estate sector, which have intensified this year. “Regulators should continue to focus on the financial industry’s ability to address credit risk in this area,” she said.
The recommendations come amid a surge in cryptocurrency activity, with Bitcoin surpassing the $100,000 milestone for the first time last week. Trump, who has shifted from being a crypto skeptic to an advocate, took to social media to celebrate the achievement. “Congratulations bitcoiners!!! $100,000!!! You’re welcome!!! Together, we will Make America Great Again!” he posted.
Bitcoin’s value has more than doubled this year, rising over 50% since Trump’s election victory. His campaign embraced cryptocurrencies, accepting digital donations and engaging with supporters at a Bitcoin conference in July.
Trump has also launched World Liberty Financial, a family-run crypto trading venture, and promised to form a cryptocurrency advisory council. Among his campaign pledges was the removal of Securities and Exchange Commission (SEC) Chair Gary Gensler, who has been a key figure in the government’s regulatory efforts targeting the crypto industry.
As Trump prepares to take office, his pro-crypto stance signals a potential shift in how the U.S. government engages with the burgeoning digital asset industry. The FSOC’s recommendations underline the need for a balanced approach, ensuring both innovation and financial stability in a rapidly evolving market.
