The Biden Administration has signaled a clear role for cryptocurrency Image: Photo by Andre Francois McKenzie on Unsplash
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- Executive order talks of opportunities and risks of digital assets.
- It signals a clear recognition of the role and significance of cryptocurrency.
- But does not set out specific new regulations.
On Wednesday President Biden issued a much anticipated executive order on cryptocurrencies. The first-of-its-kind order advances a 'whole-of-government' approach to regulating the sector, instructing federal agencies to coordinate efforts at drafting policy and regulation on digital assets.
Since the order’s development was reported in October 2021, it has been the cause of much hand wringing in the crypto industry. Some feared that the administration would overly aggressively regulate the sector, stifling growth and innovation. Instead, the order offers a sober account of some of the opportunities and risks of digital assets, positioning the administration to develop evidence-based policy and regulation.
Cryptocurrency is here to stay
The Order’s very existence signals the administration’s recognition of crypto’s current and future significance. In a Fact Sheet released alongside the Order, the White House notes that digital assets have surpassed the $3 trillion market cap, up from $14 billion just five years ago. Likewise, the Order cites surveys suggesting that about 16% of U.S. consumers, roughly 40 million Americans, have invested in or used cryptocurrencies. Beyond recognizing the crypto market’s current size and penetration, the administration also suggests that crypto could play a key role in extending access to financial services in the future. A senior administration official commenting on the Order stated: “...digital assets can also provide opportunities for American innovation and competitiveness and promote financial inclusion.”
Regulation of cryptocurrencies requires attention
Conspicuously absent from the order was any mention of specific regulation directed at the industry. While the order addressed issues including consumer protection, criminal activity, global economic leadership, financial inclusion, and innovation, it made no attempt to advance actual regulation. Instead, it directs federal agencies to better communicate their work in the digital assets sector.
Crypto as a tool of geopolitics
The order positions cryptocurrency as a potential part of the administration’s plan to maintain U.S. centricity in global finance. As one official commenting on the order noted: “Innovation is central to America’s story and our economy, generating jobs and opportunities, creating and building new industries, and sustaining our global competitive edge and leadership.” This positioning builds on the recent work of U.S. policymakers and regulators to keep pace with the more than 100 countries that are already exploring central bank digital currencies. In recent months, the Federal Reserve Board has published several reports evaluating the political and technical implications of a U.S. central bank digital currency.
Crypto could help bring about a more equitable financial system
The order takes some of the crypto industry’s criticisms of the existing global financial system seriously. One administration official shared that federal agencies need to understand not only the risks of cryptocurrencies but also how the current financial system “does and does not meet the current needs of consumers in a manner that is equitable, inclusive and efficient.” The order directs agencies to draft a report that will explore crypto’s impact on economic growth, national security, and financial inclusion. The crypto industry has long asserted that the existing financial system does not adequately and equitably serve all, particularly historically marginalized communities. The order suggests that the White House takes these critiques seriously and is attempting to find a solution.
Lessons learned from cryptocurrency are influencing future work
The order builds on previous critiques of the crypto industry. The executive order renews concern over the implementation, or lack, of anti-money laundering processes in crypto ecosystems that could disproportionately facilitate criminal activity compared with traditional value exchange options, though crypto experts dispute this point. Indeed, some have even proposed processes by which cryptocurrencies can maintain privacy while complying with regulations, which some providers already offer. The order also includes reference to the energy impact of cryptocurrencies, furthering a longstanding, if perhaps overly simplistic, critique of the sector.
Though well-received by many crypto experts and the markets (bitcoin price surged about 10% following the announcement) the order is not without its critics. Some have lambasted the administration for not taking concrete action to provide regulatory clarity to the sector. Others dismiss out of hand all governmental attempts to regulate the industry.
What's next for the crypto order?
What comes of the order will ultimately depend on how it is implemented. Without specific attempts to constrain the industry, many see it as an invitation for further dialogue with the sector. Given the challenges to the industry raised by the order, it will be critical that the crypto industry works closely with governments in the spirit and practice of public-private cooperation, not just in the U.S., but around the world, to advance sustainable, inclusive, and practical approaches to regulating cryptocurrencies.
This blog is part of an Agenda series led by the World Economic Forum’s Crypto Impact and Sustainability Accelerator (CISA) which explores issues at the nexus of policy and social impact to help bring about a systemic, inclusive, and effective approach to governing distributed ledger technology. To learn more, please contact firstname.lastname@example.org.
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The views expressed in this article are those of the author alone and not the World Economic Forum.