Janet Yellen at G20: we don’t want to ban crypto

Yesterday there was a false rumor circulating that at the ongoing G20 in Bangalore, India, they were discussing a possible ban on crypto. Disproving this speculation was U.S. Treasury Secretary and former Fed Chair Janet Yellen, who told Reuters:

“We haven’t suggested outright banning of crypto activities, but it is critical to put in place a strong regulatory framework. We’re working with other governments.”

Janet Yellen and the crypto ban

The rumor – later proven false – that the G20 was considering a total ban on cryptocurrencies was started by the current president of India’s central bank.

Indeed, it was in India a few years ago that a ban was issued against cryptocurrencies, but the Constitutional Court struck it down stating that it was unconstitutional.

It seems that there has been a real battle of government authorities against cryptocurrencies in the country for some time now, and since the authorities are losing this battle for now, they have probably tried to ask the G20 for help.

However, the single most powerful country in the G20 is the US, which is far from opposed to cryptocurrencies.

Yellen herself is not particularly supportive, but she is forced by necessity to follow the lead of her government, and Congress, who do not seem at all willing to give up the chance to take advantage of these opportunities offered by technological innovation.

Thus in India the crypto ban is not there, and India’s central bank has not even managed to get the support of the G20 to try to reintroduce a measure that, in any case, would remain unconstitutional.

It is worth noting that the Indian government of Narendra Modi is considered by many to be a populist government, which is to say, where propaganda and slogans probably matter even more than concrete government action.

In this light, the statements of India’s central bank president take on more of a propagandistic sense than a real attempt to get the G20 to impose a measure that other countries do not agree with.

It is enough to look at what, for example, Texas is doing about Bitcoin mining to realize that the US is fundamentally opposed to banning cryptocurrencies, especially Bitcoin.

Janet Yellen’s hopes for the crypto world

That said, Janet Yellen also explicitly expressed her wish for strict regulation of cryptocurrencies.

It is worth noting that in recent days, the current chairman of the SEC, Gary Gensler, also intervened to call for stricter regulation.

He did so indirectly during an interview with journalist Ankush Khardori of New York Magazine, to whom he stated that the only cryptocurrency that should not be considered a security is Bitcoin.

Indeed, according to Gensler, other cryptocurrencies have a group or person behind them who promotes their sale by promising earnings, with the goal of raising money. Bitcoin, on the other hand, has no one in particular behind it, such that there is no one who raises money by issuing BTC. All BTC are extracted by miners, who sell them to cover the high costs of mining, and this has more or less always been the case.

By now, it is time to clearly distinguish Bitcoin from other cryptocurrencies (so-called altcoins), even at the regulatory level, to the point where the description provided by Gensler to New York Magazine seems like it could really apply to the majority of cryptocurrencies, excluding Bitcoin and collateralized stablecoins.

At this point, Yellen’s wishes seem realistic, especially with regard to altcoins.

The SEC and the CFTC

In the US in particular, there is a kind of competition going on between the SEC, which deals with securities, and the CFTC, which deals with commodities.

The new crypto regulation that Congress is working on would give the CFTC oversight of the crypto market, but according to Gensler’s words, the SEC would like to take over oversight of all those cryptocurrencies that are securities.

However, given that according to Gensler they are all securities except Bitcoin, the CFTC would only be left with the task of overseeing the BTC market.

In such a confusing and convoluted framework, Janet Yellen’s request makes perfect sense, because on the one hand we need regulatory clarity, and on the other hand we need to establish how cryptocurrencies fall within the regulatory framework to avoid loopholes that might allow some to circumvent regulations that others are forced to comply with instead.

Furthermore, within this framework, it is necessary to distinguish between cryptocurrencies that are commodities, such as Bitcoin, and cryptocurrencies that are instead securities, such as probably the vast majority of others except collateralized stablecoins.

What remains totally unclear is the outcome of this attempt to regulate an asset class so very different from those on which the current regulatory framework was built.

Janet Yellen’s defeat

Even though Janet Yellen may be right in this new attempt of hers to call for strict crypto regulation, in the past, however, she has already been defeated on this issue by her own government.

Indeed, probably due to the fact that she was president of the US central bank, she has always been not only very skeptical but also very hard on cryptocurrencies.

Since taking office as Treasury Secretary, January 2021, she has tried several times to impose a hard line on cryptocurrencies on the government of which she is a part, but her government has never accepted it.

Ever since the US became in 2021 the single country in the world with the largest hashrate for Bitcoin mining, its attitude toward Bitcoin is not very tough at all. Indeed, it is quite evident that there have been several attempts in the US to exploit this new technology to do business, if not to create new business.

In short, Yellen’s battle against cryptocurrencies so far has been a losing one, although the hypothesis proposed and supported by Gary Gensler could give this battle new life.

In fact, should a clear distinction be imposed between cryptocurrencies that are commodities, such as Bitcoin, and cryptocurrencies that are securities, the rules governing them could also be very different, and become much stricter for crypto-securities, and much less strict for Bitcoin.

Therefore Yellen has lost her first battle against cryptocurrencies, but she has not yet lost the war, as long as she focuses mainly on altcoins, and in particular on those that are obviously securities.

It is no coincidence that the only cryptocurrency that has already been declared legal tender in two countries with millions of people is Bitcoin itself.

The Ethereum issue

According to Gensler, Ethereum would also be a security.

While the definition of Bitcoin as a commodity has everyone somewhat in agreement, the definition of Ethereum as a security, on the other hand, still seems decidedly debatable.

Indeed, although Gensler’s definition of crypto-security seems to fit the vast majority of cryptocurrencies rather well, it does not seem to fit Ethereum as well.

Therefore, as far as the definition of Bitcoin is concerned, the game appears to be over, just as it appears to be possibly over with regard to the vast majority of cryptocurrencies that appear quite clearly to be crypto-securities.

In the case of Ethereum, however, the doubts are still strong, because the new ETH that are issued are cashed in by the validator nodes as a form of payment for their work in validating transactions.

The problem is staking, because it actually promises financial returns, probably falling into the category of financial contracts in this way.