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US ramping up crypto regulation as El Salvador makes BTC legal tender

2021.06.12 Adam James

There remains little doubt which direction the United States is swinging when it comes to cryptocurrencies.

Though El Salvador making BTC legal tender dominated headlines this week, negative sentiment continues to pervade the Bitcoin and cryptocurrency industry this week after United States Senator Elizabeth Warren blasted digital currencies for both their supposed facilitation of high-profile ransomware attacks and their supposed destroying of the environment. At the same time, the country's Internal Revenue Service is seeking increased funding to combat crypto-related tax crime and ramp up enforcement. Nevertheless, Texas remains vocally pro-crypto.

Here's everything you need to know about these stories, and more, in this week's edition of OKEx Insights' News of the Week.

Texas allows state-chartered banks to custody crypto

State-chartered banks in Texas now have permission to custody crypto assets following a notice from the Lone Star State's Department of Banking, which clarified:

"What virtual currency custody services a bank chooses to offer will depend on the bank's expertise, risk appetite, and business model. For instance, the bank may choose to allow the customer to retain direct control over their own virtual currency and merely store copies of the customer's private keys associated with that virtual currency. Alternatively, the bank may cause the customer to transfer their virtual currency directly to the control of the bank, creating new private keys that are then held by the bank on behalf of the customer."

Key takeaways

  • Under the previous administration, the United States permitted crypto custody for chartered banks in the country last year — a green-light some in the industry feel will be changed to red under the new administration, which has demonstrated a highly critical attitude toward cryptocurrencies.
  • Texas — a historically and famously freedom-loving state — has grown increasingly pro-crypto. The largest state in the U.S. has seen an influx of Bitcoin miners seeking both wind energy and a friendly regulatory environment.

El Salvador's BTC adoption draws IMF attention

El Salvador became the first country to declare BTC legal tender and mandate its acceptance for a form of payment following congressional approval on Wednesday. However, an International Monetary Fund spokesperson has stated that the new law "raises a number of macroeconomic, financial and legal issues that require very careful analysis."

Key takeaways

  • Generally speaking, many find it unlikely that traditional global financial regulators and leading central banks will find the news out of El Salvador positive — especially with the United States growing increasingly critical of cryptocurrencies.
  • El Salvador is reportedly seeking more than $1 billion in loans from the IMF.

U.S. Senator Elizabeth Warren blasts cryptocurrencies

U.S. Senator Elizabeth Warren lambasted cryptocurrencies in a June 9 hearing on central bank digital currencies. 

The former presidential candidate blamed cryptocurrencies for facilitating ransomware attacks, stating, "Every hack that is successfully paid off with a cryptocurrency becomes an advertisement for more hackers to try more cyber attacks."

Warren also recited the common argument that cryptocurrencies are destroying the environment, stating that "mining has devastating consequences for the climate."

Key takeaways

  • Warren's comments should come as no surprise, given the Biden administration's continued prioritization of increased cryptocurrency regulation.
  • The U.S. will likely become increasingly anti-crypto. Warren called for regulators "to confront these issues head on" and referred to BTC and other cryptocurrencies as "bogus digital private money."

IRS seeking more money to crack down on crypto

The U.S. Internal Revenue Service is continuing to ramp up crypto-enforcement efforts, as outlined in the tax authority's latest Congressional Budget Justification & Annual Performance Report and Plan. 

Specifically, the IRS will outsource enforcement efforts to contractors specializing in blockchain tracking and tax evasion. It is also seeking an increased budget to develop an internal dashboard for cryptocurrency and blockchain analytics.

Key takeaways

  • The U.S. is currently going after cryptocurrencies on all fronts. One might be forgiven for interpreting the onslaught of news and negative sentiment from elected officials as an attempt to regulate away cryptocurrencies while slowly ushering in a digital dollar.
  • OKEx Insights discussed, more than a year ago, the potential for the tracking of Bitcoin to become trivial — a future that is currently in development.

MicroStrategy offers junk bonds to fund BTC purchase

MicroStrategy is continuing its aggressive Bitcoin strategy through a $500 million debt offering of senior secured notes — often called "junk bonds" — the proceeds of which will be used to purchase BTC. 

As reported by The Block, MicroStrategy — which currently has more than 92,000 BTC — has already attracted more than $1.6 billion for the deal.

Key takeaways

  • As implied by their name, junk bonds — such as those being offered by MicroStrategy — offer high yields alongside an increased risk of default.
  • Despite the apparent demand for MicroStrategy's offering, some critics believe that the company is running the risk of over-leveraging its exposure to the foremost cryptocurrency.

OKEx Insights presents market analyses, in-depth features and curated news from crypto professionals.

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Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.