President Joe Biden’s long-awaited crypto executive order affirms crypto is to stay, and the United States wants to embrace it.
On March 9, President Biden signed a long-awaited, first-of-its-kind executive order, directing federal agencies to study digital assets, including cryptocurrencies, stablecoins, and central bank digital currency (CBDC).
A result of months of work with stakeholders, the executive order establishes the first-ever comprehensive federal digital assets strategy for the United States and requires federal agencies to take a coordinated and comprehensive approach to digital asset policy.
“The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system, and the climate,” the accompanying fact sheet says, adding that “it must play a leading role in international engagement and global governance of digital assets consistent with democratic values and U.S. global competitiveness.”
This represents a significant shift in the narrative of crypto regulation.
“It is no longer about whether crypto will survive, but how the U.S. can embrace responsible innovation and be a leader in the sector," said Nisa Amoils, managing partner at A100x and advisory board member of Global DCA. The executive order does not lay out specific directions for federal agencies; instead it opens a dialogue and Congress will need to decide if legislation is needed, Amoils added.
"The cryptoverse rallied on the President’s announcement,” said Jim Preissler, managing partner at Tritaurian Capital.
Bitcoin’s price rose 7 percent after the fact sheet was released ahead of the executive order, helping to counter a recent decline which has the currency down 7 percent overall in a month-to-date comparison and 16 percent in year-to-date.
“While it alleviated the fears of an outright ban, at the same time it was not to be seen as 'game on' for the existing status quo,” Preissler noted.
Clarity for crypto-assets
The market cap of crypto-assets has grown from $14bn to $3trn within the past five years, and it is estimated that around 16 percent of adult Americans, or roughly 40m people, have invested in, traded, or used cryptocurrencies.
Meanwhile, crypto companies in the U.S. are currently subject to a very complex regulatory framework. Although the space is regulated and overseen by a number of federal agencies, there is no single regulator that can see the whole picture of how a crypto firm operates.
The patchwork of existing agencies that are currently involved in the regulation of the industry is confusing for entrepreneurs to build and innovation to thrive, according to Amoils.
The executive order seeks to amend this by establishing a “whole-of-government approach” to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.
“This is the first step to the acknowledgment of a clearer path to definitions and who regulates," Amolis stressed.
The executive order lays out a national policy for digital assets across six key priorities: consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
This mandate is designed to provide a framework where “cryptocurrencies, crypto securities, stablecoins, NFTs, DAOs, and other crypto-assets can thrive under a supervised, U.S.-based environment that provides leadership and trust," according to Preissler.
These priorities will “guide the evolution of the digital asset ecosystem in a way that is consistent with our values,” National Ecomomic Council director Brian Deese and national security advisor Jake Sullivan commented.
“Governments alone cannot solve these problems, and definitely not a government that operates in siloes,” they added.
The executive order urges the Treasury’s Financial Stability Oversight Council to identify systemic financial risks posed by digital assets and to develop appropriate policy recommendations to address any regulatory gaps.
The Treasury is also directed to produce a report on the future of money and payment systems.
“We’ll also convene the Financial Stability Oversight Council to evaluate the potential financial stability risks of digital assets and assess whether appropriate safeguards are in place,” Secretary of the Treasury Janet Yellen said.
The report will complement the Treasury and main federal financial regulators’ ongoing work and their November stablecoin report that aimed to address potential systemic risks of stablecoins when used as a means of payment.
Urgency for digital dollar research
In the executive order, Biden calls for the government to explore the technological infrastructure and capacity needs for a potential CBDC, and it places “urgency” on research and development.
Although many of the U.S.’ peers and economic rivals have quickly embraced the idea of a central bank-issued digital money, the U.S. has taken a more cautious approach to studying the case of digital fiat.
However, as the number of countries exploring or piloting digital fiat is increasing, so is the pressure not to stay behind. With China planning to fully roll out its digital yuan this year, concerns have emerged that the U.S. dollar could lose its dominance in the global financial system.
Biden’s executive order urges the government to prioritize U.S. participation in multi-country experimentation, and “ensure U.S. leadership internationally” to promote CBDC development that is “consistent with U.S. priorities and democratic values.”
The Federal Reserve opened discussions on wide-ranging questions in relation to the policy considerations of a digital dollar in January, while the Boston Fed is exploring the technological feasibility of a hypothetical CBDC platform.
Industry players welcomed the order.
“We commend President Biden for releasing this Executive Order and are strongly encouraged that it reflects principles that are consistent with ETA’s own,” said Jodie Kelley, CEO of the Electronic Transactions Association (ETA).
“ETA members lead the payments and crypto space, and we look forward to continuing to work with policymakers as guidelines begin to take shape.”
The American Bankers Association (ABA) commented: “We share the Biden administration’s interest in responsible financial innovation. Ensuring that consumers, investors and businesses are protected from the potential financial risks posed by digital assets should be a priority for the government, and we believe that can only be achieved through careful coordination with the private sector, including the banking industry.”