This article is compiled and organized by BlockWeeks
Regulators globally and in the United States are focusing their attention on the crypto market. Lawmakers in Washington, however, are entangled in battles on multiple fronts, which could drag down the advancement of major crypto-related legislation; but a series of key decisions and rule proposal deadlines are rapidly approaching. These milestones in the coming weeks will determine the tone of the framework regulating market activities and market participants.
The Regulatory Window Is Tightening
U.S. regulatory agencies have set their sights on exchanges, lending platforms, and stablecoins. SEC Chairman Gary Gensler has repeatedly commented that certain products may be deemed securities. However, for the crypto industry, this wave of regulation has long been anticipated and in some cases even welcomed—a clearer regulatory framework is expected to spawn a new wave of healthy innovation.
Key Milestones in the Next 30 to 90 Days
Infrastructure Bill House Vote. The bipartisan infrastructure bill passed by the Senate contains at least two provisions related to crypto companies and markets. The House vote is expected within the next two weeks, after being delayed multiple times due to partisan and intra-party disputes.
Boston Fed CBDC White Paper. The Boston Fed is expected to release a highly anticipated white paper, jointly with the MIT Digital Currency Initiative, exploring considerations related to central bank digital currencies (CBDCs).
Treasury Stablecoin Report. After Janet Yellen stated in July that the government "must act quickly" to establish a regulatory framework for stablecoins, the President's Working Group on Financial Markets (PWG), led by the U.S. Treasury, is reportedly preparing a report recommending rules for stablecoin issuers.
DOJ New Enforcement Team. The U.S. Department of Justice announced on Wednesday the establishment of a "National Cryptocurrency Enforcement Team," focusing on combating crimes related to crypto exchanges and privacy services such as mixing and tumbling, and assisting in tracing funds lost to fraud and ransomware.
SEC and ETF Timetable. Gary Gensler also hinted that the SEC will scrutinize exchanges, lending platforms, and DeFi protocols more closely. Major ETF dates are also approaching: the first responses on five futures-based Bitcoin ETFs will come in October, while the SEC's final decision on the first spot Bitcoin ETF is due on November 14.
FATF and FinCEN. The FATF's final guidance on the travel rule and crypto assets is expected in October; FinCEN's "unhosted wallets" rule is expected to be finalized in November.
Three Fronts on Capitol Hill
Congress's legislative agenda includes three interrelated negotiations, all tied to the President's economic plan: voting to raise the debt ceiling to avoid the threat of default, then funding the government to avoid a shutdown; the House plans to vote on the bipartisan infrastructure bill containing at least two crypto provisions; and negotiations on the proposed $3.5 trillion health care, education, and climate tax and spending bill.
Among them, the stopgap funding bill is the first and arguably the easiest task to complete. According to Senate Majority Leader Chuck Schumer, an agreement on the debt ceiling was reached on Thursday to raise the statutory debt limit by $480 billion and extend government funding until December 3, with a vote scheduled for Thursday evening.
Two "Hard-to-Enforce" Crypto Provisions in the Infrastructure Bill
The bipartisan infrastructure bill passed by the Senate contains at least two provisions related to crypto companies and markets, which will soon be voted on in the House. The previously controversial "broker provision" (Section 6045 of the tax code) was written into the bill text at the last minute and passed by the Senate. This provision imposes reporting obligations to the IRS on a large group of market participants, some of whom are technically unable to comply. Since the House postponed the vote late last week, the final outcome of this provision remains unclear.
Another crypto provision quietly inserted into the infrastructure bill that is equally difficult to enforce is §6050I: it imposes reporting obligations on crypto "business" transactions exceeding $10,000. As detailed by Coin Center, under §6050I, the recipient of digital assets must verify the counterparty's personal information and submit a report within 15 days of the transaction, including name, Social Security number, and the nature of the transaction. Unlike the broker provision, which places obligations on service providers and intermediaries, §6050I places the reporting responsibility directly on individuals using crypto assets and their counterparties—even if the transaction has no intermediary or third party at all. The wording of "digital assets" in the infrastructure bill would also extend to NFT recipients. Coin Center believes the reporting provision is unconstitutional and difficult to comply with for crypto transactions.
Bitcoin ETFs: November 14 and Further Deadlines
The exchanges corresponding to ETF applicants submit Form 19b-4 to the SEC on their behalf. From the date of submission, the SEC typically makes a decision within 180 days, but may also choose to delay the final decision to a maximum of 240 days. After delaying rulings on most spot Bitcoin ETFs, the SEC must now make a final decision on the first spot Bitcoin ETF in the nation by November 14; the deadlines for the other five spot Bitcoin ETFs are spread between December 5 and January 20 of the following year.
Gary Gensler reiterated last week his support for futures-based Bitcoin ETFs (tracking CME futures), reasoning that investing in futures contracts provides investor protection compared to more direct holding of digital assets (physically backed and traded on CBOE or the NYSE). On Wednesday, the BTC annualized basis (the spread between CME Bitcoin futures and spot prices) rose to its highest level in months, suggesting investor sentiment has shifted back to bullish on Bitcoin, while CME's scale is surpassing Deribit, again indicating that onshore institutional interest is overtaking offshore crypto-native interest.
Stablecoin Report: The First Step of the Regulatory Framework
The President's Working Group on Financial Markets (PWG), led by the Treasury and responsible for exploring stablecoin-related risks and proposing mitigation recommendations, met with the OCC and FDIC at its July meeting and discussed stablecoin regulation with industry executives last month. Key members of the PWG include Treasury Secretary Janet L. Yellen and Acting CFTC Chairman Rostin Behnam, among others.
The "Stablecoin Risk Report," expected to be released by the end of October, is seen as the first step in building a regulatory framework for the crypto industry. According to a senior official, the report is expected to recommend creating a new limited-purpose charter allowing crypto banks to manage stablecoins like deposits.
DeFi's "Compliance" Turn
Under regulatory pressure, DeFi projects have begun to proactively draw boundaries. Fearing it might constitute a security or certain derivatives, dYdX restricted its governance token airdrop to non-U.S. residents; DEX aggregator 1inch has begun implementing geofencing for U.S. IP addresses.
Lending platform Aave plans to launch a permissioned platform, Aave Arc, and a recent proposal aims to introduce Fireblocks to tap into permissioned DeFi whitelisted liquidity pools for institutions. Other DeFi lending platforms such as Maple Finance were designed from the outset for enterprise and institutional clients.
In August, Twitter and Square CEO Jack Dorsey introduced the Project TBD plan, focusing on developing a fully permissionless open platform to build a decentralized exchange for Bitcoin. SushiSwap's anonymous head Maki stepped down last month, with his intentions not entirely clear.
Regulatory Clarity Is Actually a Positive
Washington's fourth quarter is bound to be busy: large-scale spending proposals on Biden's agenda, new whistleblower allegations against Facebook, calls to investigate Fed insider trading, and looming fiscal debt concerns—while members of Congress struggle to reach consensus even within their own party. Meanwhile, U.S. regulators have multiple crypto-related delivery deadlines approaching, including several research conclusions on CBDCs and stablecoins, as well as decisions on Bitcoin ETFs. These are seen as the first step in building a regulatory framework and dividing clearer responsibilities among various regulators.
Although the regulatory cloud has not yet lifted, more guidance and clarity from regulators should spawn a new wave of healthier, more sustainable innovation. Some institutions such as Citadel have avoided crypto investments due to regulatory uncertainty, while others are restricted from directly holding crypto assets and are waiting for the first U.S. Bitcoin ETF to be approved. Greater regulatory clarity will bring fuller competition among service providers and provide the "stamp of approval" that hesitant individuals and institutions need.
The key to establishing an appropriate regulatory framework lies in regulators engaging in more dialogue with community members and stakeholders. These important milestones in the coming weeks will set the direction for the tone of the crypto market.
