It Took So Far For The Government To Care About Cryptocurrency
President Joe Biden issued an executive order this month, directing government agencies to investigate the risk cryptocurrency poses to consumers, investors, and financial markets, and to develop policy solutions to address these issues.
The March 4 order also called on the Treasury Department to consider creating a government-controlled digital currency.
This is the first time the government has officially addressed cryptocurrency – a now popular market at around $1.7 trillion — underscoring both the industry’s growing influence and the Biden administration’s realization of its importance.
Here’s what to know about Biden’s executive order, including what it entails, why it was issued, and what it could mean for cryptocurrency regulation.
What is the Executive Order on Digital Assets about?
The March 9 order, described as “the first government-wide strategy to protect consumers, financial stability, national security and respond to [the] climate risks” of digital assets, focuses on six areas: consumer and investor protection, financial stability, illicit activities, US competitiveness, inclusion and accessibility, and responsible development.
He directs the Departments of Treasury, Commerce, and Justice, the Federal Reserve, the Office of Science and Technology Policy, and other government agencies to research the risks and benefits of crypto.
“The Executive Order should be viewed more as a call to action than a specific game plan,” writes Aaron Klein, an economist at the Brookings Institute. “Broadly speaking, the White House seeks to strike the right balance between the positive aspects of crypto – financial efficiency, inclusiveness, American leadership in global finance – and its negative aspects: potential illicit financing , consumer and business abuse, and regulatory arbitrage.”
Although Biden’s order does not announce any new regulations, it does hint that they are likely on the way.
Will the United States create its own cryptocurrency?
Biden instructed the Treasury Department to determine if it would be possible to issue a US-backed central bank digital currency, also known as CBDC, similar to those that China, Sweden, India EU and other governments are. work on.
The Federal Reserve launched its own four-month investigation into the possibility of a “digital dollar” in January.
“It is simply very difficult for me to imagine that the United States, given the status of the dollar as the dominant currency in international payments, would not come to the table under these circumstances with a similar offer,” said Fed Governor Lael Brainard. told the National Association of Business Economics last year, The Wall Street Journal reported.
But many officials, Republicans and Democrats, are ambivalent about a Fed digital dollar.
On the one hand, it could make it easier for the government to distribute financial aid to people who don’t have bank accounts. But, unlike cash, it could also allow the US central bank to see what citizens have spent it on, raising privacy concerns.
Why did Biden issue the order?
Some 40 million American adults, or 16% of the population, have used, traded or invested in cryptocurrencies, according to the Pew Research Center.
The White House is eager to step up oversight of something that involves such a large industry and, according to the order, “protect against any systemic financial risk posed by digital assets.”
Just last month, the Department of Justiceassociated with a 2016 hack of cryptocurrency exchange Bitfinex, the largest financial seizure in history.
It is also a chance for the United States to strengthen its position as a dominant global economic power. The order directs the Department of Commerce to “establish a framework to drive U.S. competitiveness and leadership in leveraging digital asset technologies.”
There are also concerns about the environmental impact of digital assets. To mine bitcoin, warehouses of high-powered computers operate around the clock, consuming more energy in a year than the whole of Finland, The New York Times reported — or almost 0.5% of all electricity consumption in the world, a tenfold increase compared to 2017.
Biden’s order notes substantial implications for “climate risk” and calls for the “responsible development, design, and implementation” of cryptocurrency.
Is the White House investigating crypto because of Russia?
While Biden has insisted the directive has been in the works for months, it comes on the heels of the United States and its allies issuingon the invasion of Ukraine, including freezing the assets of individuals and businesses.
The executive order calls for action to mitigate “illicit finance and national security risks” that bad actors could pose and directs agencies to work with America’s allies “to ensure that the frameworks, capabilities and international partnerships are aligned and responsive to risks”.
Officials in Washington have raised concerns that cryptocurrency, a decentralized system that is encrypted and harder to track than traditional financial transactions, a letter to Treasury Secretary Janet YellenSenator Elizabeth Warren and other lawmakers have raised concerns that “digital assets and alternative payment platforms could make it easier to circumvent U.S. and global sanctions” in Russia.. In
At a March 4 hearing, Warren said Federal Reserve Chairman Jerome Powell that cryptocurrency was a “ghost and unregulated world” that Russian politicians, billionaires and corporations could exploit.
How did the crypto industry react to the executive order?
In most industries, even vague regulatory talk is usually met with groans. But crypto traders have responded very favorably to Biden’s order.
Coinbase Chief Policy Officer Faryar Shirzad said he was optimistic about the directive.
“The White House appears to understand and embrace the transformative potential of digital asset technology and the importance of maintaining American leadership,” Shirzad tweeted.
Blockchain Association policy officer Jake Chervinsky said the order was “about as good as we could ask for.”
“Anyone worried that President Biden’s executive order will spell doom and gloom for crypto can completely relax now,” Chervinsky said. on Twitter. “The main concern was that the EO might impose rushed regulation or impose new and bad restrictions, but there is no such thing here.”
And Binance CEO Changpeng Zhao tweeted jokingly“I guess crypto isn’t going away.”
Cryptocurrency markets surged in response to the executive order, with top-tier bitcoin rising nearly 9% in the past week to around $42,000. Ether, the second largest cryptocurrency, reached nearly $2,800.
What is the next step ?
Government agencies are now expected to commission studies over the next two to six months to explore the risks and benefits of cryptocurrency. Their recommendations may be adopted as departmental regulations or forwarded to Congress for incorporation into new legislation.
Industry insiders will be watching closely, especially when it comes to the development of a digital dollar.
“Passing the US CBDC could fundamentally change the role of central and commercial banks,” said Lisa Ledbetter, a partner at corporate law firm Reed Smith and a former Treasury Department attorney. told Yahoo Finance.
“Weighing all the factors in the [executive order] is an act of political and practical balance,” added Ledbetter. “A US CBDC would have international consequences, making it imperative that the private sector, foreign central banks and other stakeholders have a seat at the table.