{"id":54111,"date":"2025-10-22T03:01:32","date_gmt":"2025-10-22T03:01:32","guid":{"rendered":"https:\/\/dogewisperer.com\/?p=54111"},"modified":"2025-10-22T03:01:32","modified_gmt":"2025-10-22T03:01:32","slug":"genius-act-could-shield-bitcoin-from-fed-oversight-governor-barr-warns","status":"publish","type":"post","link":"https:\/\/dogewisperer.com\/?p=54111","title":{"rendered":"GENIUS Act Could Shield Bitcoin From Fed Oversight, Governor Barr Warns"},"content":{"rendered":"
\n

Federal Reserve Governor Michael S. Barr used a keynote at DC Fintech Week to praise Congress for finally drawing lines around stablecoins\u2014then immediately warned that the new law\u2019s drafting could open channels for risk and regulatory arbitrage, including a pathway for Bitcoin-linked instruments to sit inside stablecoin reserves with only indirect Federal Reserve visibility.<\/p>\n

Bitcoin May Exploit Loophole In GENIUS Act<\/h2>\n

Speaking in Washington on October 16, Barr said<\/a> \u201cpayments innovation is accelerating,\u201d and acknowledged that the newly enacted GENIUS Act<\/a> \u201cprovides some clarity to issuers of stablecoins about how they can fit into the regulatory and supervisory framework,\u201d potentially speeding development of new payment products. But he stressed that \u201csuccess in accomplishing these goals will depend on the details of regulatory implementation,\u201d adding bluntly: \u201cRegulators have a lot of work to do to implement the act.\u201d<\/p>\n

The most pointed warning came in Barr\u2019s discussion of what the statute now counts as permissible reserve assets for payment stablecoins. The GENIUS Act\u2019s core safety mechanism is to restrict reserves to a list of high-quality, liquid instruments. Yet the text also allows reserves formed via overnight repurchase agreements backed by \u201cany medium of exchange authorized or adopted by a foreign government.\u201d<\/p>\n

Barr highlighted the practical consequence with a concrete example: \u201cFor example, until quite recently, El Salvador treated Bitcoin as legal tender, and it still specifically permits Bitcoin to be used for transactions on a voluntary basis. As a result, an issuer could argue that Bitcoin repo could qualify as an eligible reserve asset for a stablecoin.\u201d<\/p>\n

He cautioned that if Bitcoin prices \u201cwere to drop sharply in value, a stablecoin issuer could be stuck holding the Bitcoin that had declined in value, potentially compromising the one-to-one backing of the stablecoin liabilities,\u201d concluding that \u201cto the extent possible, regulations should be put in place to eliminate or minimize such risks.\u201d
\nBarr\u2019s Bitcoin example ties directly to his broader concern: the GENIUS Act creates a mosaic of overseers\u2014four federal agencies plus every state and territorial regulator can serve as primary supervisor of permitted stablecoin issuers.<\/p>\n

Not Only Bitcoin: More Crypto Risks<\/h2>\n

In his view, that multiplicity risks<\/a> creating uneven interpretations of the law\u2019s guardrails and incentives for \u201ccharter choice\u201d that could blunt federal prudential intent. \u201cThere might be a great deal of heterogeneity in the regulatory frameworks that apply to permitted issuers\u2026 The resulting array of charter choice options, unless carefully managed, may provide incentives for regulatory arbitrage,\u201d he said.<\/p>\n

Beyond the foreign-authorized medium-of-exchange clause, Barr flagged other reserve-design openings that could transmit stress. He noted that the GENIUS Act allows uninsured deposits to count as permissible reserves and recalled their role as a \u201ckey risk factor during the March 2023 banking stress.\u201d The law empowers regulators to limit concentrations in such deposits, he said, but \u201cit will matter how these rules are written.\u201d<\/p>\n

His critique extended to scope and structure. The statute empowers federal and state regulators to authorize a wide range of activities for stablecoin issuers\u2014\u201cdigital asset service provider\u201d and \u201cincidental\u201d businesses beyond pure issuance. Barr warned that issuers \u201care likely to seek to stretch these activities limitations,\u201d even to the point of arguing they could \u201cperform the full range of activities conducted by FTX<\/a>,\u201d provided they make certain representations and maintain appropriate accounting. That breadth, he suggested, could leave some issuers operating with risk profiles far afield from narrow payments functions while escaping consolidated capital regimes if housed in trust-chartered entities\u2014an echo of historical vulnerabilities.<\/p>\n

On capital, Barr argued the law\u2019s issuer-level requirements could prove \u201ctoo narrow\u201d once firms branch into these additional lines, particularly when the act carves bank-affiliated issuers out of consolidated capital coverage. \u201cAppropriate capital requirements are another area where coordination among federal and state regulators is key,\u201d he said, adding that the statute\u2019s standard for judging whether state rules are \u201csubstantially similar\u201d to federal requirements will matter in practice.<\/p>\n

He also pressed on consumer-protection gaps. The act does not sweep in all instruments commonly marketed as \u201cstablecoins,\u201d allowing certain dollar-denominated tokenized products to remain outside the new regime. That omission, Barr warned, risks confusing users into believing they are protected when \u201cthere are no prudential protections of any kind.\u201d He urged federal and state enforcers to use unfair-and-deceptive-practices authorities to police misrepresentations and noted the law lacks the fraud and unauthorized-transfer protections that apply to traditional payment rails.<\/p>\n

At press time, Bitcoin traded at $108,973.<\/p>\n

\"Bitcoin<\/div>\n","protected":false},"excerpt":{"rendered":"

Federal Reserve Governor Michael S. Barr used a keynote at DC Fintech Week to praise Congress for finally drawing lines around stablecoins\u2014then immediately warned that the new law\u2019s drafting could open channels for risk and regulatory arbitrage, including a pathway for Bitcoin-linked instruments to sit inside stablecoin reserves with only indirect Federal Reserve visibility. Bitcoin […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"iawp_total_views":0,"footnotes":""},"categories":[2],"tags":[3,4,5],"class_list":["post-54111","post","type-post","status-publish","format-standard","hentry","category-news","tag-crypto","tag-doge","tag-news"],"_links":{"self":[{"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/posts\/54111","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=54111"}],"version-history":[{"count":0,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=\/wp\/v2\/posts\/54111\/revisions"}],"wp:attachment":[{"href":"https:\/\/dogewisperer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=54111"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=54111"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/dogewisperer.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=54111"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}