Stablecoins are ostensibly safer than regular cryptocurrency thanks to their ties to less volatile assets, but US regulators apparently aren’t convinced. Bloomberg sources hear the Treasury Department and other federal agencies are close to a possible crackdown on stablecoins through a review from the Financial Stability Oversight Council. Officials are reportedly concerned the digital money is largely unregulated and could ultimately destabilize the financial system, not protect it.
A presidential Working Group on Financial Markets is believed to be most concerned about Tether. The cryptocurrency’s operators said they stabilize their funds by holding large amounts of corporate debt. That could be vulnerable to “chaotic investor runs” if cryptocurrency values tank, according to Bloomberg.
While a firm decision isn’t expected until December, when the Working Group is believed to be issuing recommendations, there’s reportedly a “consensus” in favor of an Oversight Council review. If that happens, the council could label stablecoins as threats that warrant strict regulation. Numerous cryptocurrencies could be forced to change their business models or even shut down.
As it stands, stablecoins are at risk from government competition. The Federal Reserve is exploring the possibility of launching a central bank cryptocurrency. Such a move could render private options moot in the US — there wouldn’t be much point to them if there was an official, potentially more reliable equivalent. Whatever happens, it’s safe to say the existing stablecoin market might not last long as-is if a review goes forward.