TLDR: President Biden’s Executive Order on Crypto

By: Khalil A. Bryant, J.D. Candidate

whitehouse.gov

Earlier today, President Biden signed an executive order instructing various regulatory agencies to take a unified approach to examining the potential risks and benefits of cryptocurrencies. The long-awaited order outlines a national policy focused on six key priorities:

1. Consumer and investor protection;
2. Financial stability;
3. Illicit finance;
4. U.S. leadership in the global financial system and economic competitiveness;
5. Financial inclusion; and
6. Responsible innovation.

Each priority is briefly discussed, in turn, below:

1. Consumer and Investor Protection

Due to the variety and complexity of digital assets, there must be uniform standards to ensure that adequate safeguards are in place to protect against risks, like the billions of dollars of losses caused by cybersecurity and market failures of major trading platforms and exchanges. These safeguards should avoid unlawful and arbitrary surveillance to protect civil liberties and avoid human rights abuses.

2. Financial Stability

Digital asset issuers, exchanges and trading platforms, and intermediaries should be in compliance with existing regulations and standards that govern legacy institutions. This mitigates the risks for institutional investors involved in both crypto and traditional equities markets. To the extent that digital assets pose unique risks to the stability of the financial system, the existing laws should be expanded, as needed, to adequately address these additional risks.

3. Illicit Finance

The United States serves a major international role in protecting against illicit financial activities, such as money laundering, fraud, and the financing of terrorism. Other countries’ unwillingness to stringently enforce AML/CFT laws decreases the impact of American efforts and digital assets (e.g. p2p platforms, decentralized exchanges, etc.) exacerbate this issue by creating novel security threats. Therefore, the United States must work with other countries to establish controls and accountability in existing and future financial payment systems to promote democratic principles while also discouraging illicit activity.

4. U.S. Leadership in the Global Financial System and Economic Competitiveness

The USD’s status as the world reserve currency gives the United States significant economic and national security benefits, which the country should aim to preserve by becoming an innovation leader in the emerging class of digital assets. This will enable the United States to sustain its financial power, influence technological trends, and continue promoting democratic values on the global stage.

5. Financial Inclusion

The United States government has a strong interest in supporting citizens who are unbanked and underserved by TradFi institutions, lowering transaction costs in general, and making sure new financial systems are equitable for all Americans.

6. Responsible Innovation

The United States must encourage responsible innovation that promotes privacy and security, disincentivizes illicit activity, and mitigates environmental consequences of cryptocurrency mining.

A Digital Dollar’s still on the table

Importantly, President Biden stated that a U.S. CBDC is still a possibility if deemed to be in the national interest after further study into the potential advantages and drawbacks. The order also advises American leadership to collaborate with allies to advocate for CBDCs centered around democratic values.

Teamwork Makes the Dream Work

President Biden did not specifically identify how he wants federal agencies to treat digital assets, but he did ask them to coordinate efforts on research studies and be more transparent about the steps they are taking to address regulatory issues within the sector. The federal agencies were given varying deadlines for the assigned tasks ranging from 3 to 12 months. Interestingly, the SEC (and Czar Gensler) were pretty much excluded from the group project.

Five Immediate Thoughts

1. President Biden’s historic executive order is great news for the crypto community as it indicates that the U.S. federal government is taking an open view on cryptocurrencies. Rather than taking a hard-lined approach and politicizing the issue, President Biden acknowledged the numerous benefits of digital assets while being honest about the underlying risks. The order’s lack of restrictive measures should excite early investors. Today’s surge in the market is indicative of a positive public reaction.
2. Innovation is tantamount to investor protection in the order so institutional investors looking to invest in digital assets can now be optimistic about related profit opportunities. Moreover, U.S. entrepreneurs and developers building blockchain-based companies will be less tempted to move their operations off-shore now that they have some certainty that digital assets have a future in America, which will result in domestic job creation and increased GDP.
3. The order was a rallying call of sorts asking the federal agencies to unite in the common mission of maintaining American international dominance and spurring economic growth. President Biden seems to be discouraging the divided approach that lawmakers have taken up to this point and is pressuring government officials to work together to produce solutions so that the country can gain/maintain a competitive advantage in the industry.
4. President Biden’s emphasis on democratic values mimics his recent State of the Union address and highlights the government’s consistent messaging with regards to Russia’s invasion of Ukraine. President Biden’s clear belief that crypto can be used to advance democratic values is promising since crypto has been a controversial topic lately due to its purported ability to help Russians evade economic sanctions. Perhaps the most notable sanction is the U.S. removing Russia from SWIFT. While the consequences have yet to be felt, we could very well be witnessing the decline of the dollar as the world reserve currency. Other countries have likely begun contingency plans (e.g., China’s CIPS) to cope with the possibility that financial sanctions could happen against them as well. Notably on March 3rd, FED Chair Jerome Powell made the stunning admission that “it is possible to have more than one reserve currency.” With all of this in mind, the U.S. clearly understands that there is currently a race to determine who will become the leader in digital assets.
5. The section on a digital dollar hints that a U.S. CBDC is on the horizon. Privacy was a recurring theme in the order so I remain hopeful that a digital dollar will serve as a preferable option to the digital yuan rather than a tool for heightened surveillance. In my opinion, relying on private-issued stablecoins backed by financial institutions is still a better option.