Washington Post: As Bitcoin fluctuates wildly, the White House is studying relevant regulatory gaps

According to The Washington Post, the Biden administration, lawmakers and central bank governors are working to address new challenges posed by cryptocurrencies. Earlier this month, U.S. Treasury officials informed the White House of the risks posed by cryptocurrencies, two people familiar with the matter said.

The White House is examining potential “gaps” in oversight related to the crypto markets, such as whether they could be used to finance illegal or terrorist activities, and they are also discussing whether ordinary retail investors who buy cryptocurrencies need some protection, people familiar with the matter said.

For now, federal regulators don’t believe the wild swings in crypto markets threaten the overall stability of financial markets, although they believe the risks are worth monitoring.

The article states: "They are aware of the various risks and facts that require attention, but remain on the sidelines."

Meanwhile, central bankers and members of Congress are increasingly talking about policies that would significantly change the cryptocurrency market. The House of Representatives has passed and sent to the Senate bipartisan legislation directing federal regulators to study and clarify cryptocurrency rules.

Federal Reserve Board member Lael Brainard published an article on Monday highlighting the potential benefits of a central bank-created and managed digital currency. A government-provided digital currency could provide a safer alternative for instant digital transactions, cutting into the market share of cryptocurrencies.

Cryptocurrency markets have been particularly volatile, unnerving investors and highlighting to policymakers the potential dangers of the fast-growing sector. Bitcoin, the most popular cryptocurrency, has plunged more than 50% from its previous peak amid a broader cryptocurrency sell-off. Crypto markets appeared to be unnerved by Musk's statement that Tesla would no longer accept bitcoin as a payment method and by Chinese officials' proposal to impose new restrictions on financial firms involved in cryptocurrencies.

Recent market instability has heightened concerns about cryptocurrencies, including the environmental impact of bitcoin mining. Government officials also believe that cryptocurrencies make it easier for criminals to move money without being detected.

Banking expert Gregg Gelzinis said: “Cryptocurrencies are becoming a larger part of the financial system, and as banks and other financial institutions become more closely tied to them, regulators should focus on how this market intersects with our financial regulatory framework.