US President Joe Biden on Wednesday signed an executive order calling on the government to examine the risks and benefits of cryptocurrencies.
This is a long-awaited directive that has put the crypto industry on edge, not least due to growing regulatory concerns around the world over the nascent market for digital assets.
There was reports of a split between White House officials and Treasury Secretary Janet Yellen, leading to delays in rolling out the policy.
The crypto market caught wind of the executive order overnight after the Treasury accidentally released a deleted statement since calling it “historical” and releasing some details ahead of time.
The decree was finally signed on Wednesday. It calls on federal agencies to adopt a unified approach to the regulation and oversight of digital assets, according to a White House Fact Sheet.
Here are the key things to know.
Protect consumers
The measures announced on Wednesday will focus on six key areas:
- Consumer and investor protection
- Financial stability
- Illegal activity
- Competitiveness of the United States on the world stage
- Financial inclusion
- Responsible innovation
Consumer protection is an important part of the directive. There have been countless stories of investors falling into crypto scams, or losing huge sums of money through cyberattacks on exchanges or the users themselves.
The Biden administration is asking the Treasury to assess and develop policy recommendations on crypto. He also wants regulators to “provide sufficient oversight and protect against any systemic financial risk posed by digital assets.”
While policymakers have been keen to downplay the systemic risks resulting from crypto, there are growing concerns about the role played by stablecoins. These are digital tokens that are supposed to be pegged to the value of existing currencies like the US dollar.
Tether, the world’s largest stablecoin with $80 billion in circulation, has drawn ire from regulators over claims that its token is not sufficiently backed by dollars held in reserve. Tether says its coin is fully collateralized, but its reserve mix includes short-term debt securities like commercial paper, not just cash.
The topic of stablecoins was notably absent from the White House announcement on Wednesday, though Yellen made it clear she wants to see Congress introduce regulation for the sector.
Illegal activity
Another key area that Biden’s executive order focuses on is rooting out illegal activity in the crypto space.
The president called for an “unprecedented focus of coordinated action” by federal agencies to mitigate illicit finance and national security risks posed by cryptocurrencies. It also calls for international collaboration on the issue.
Last month, US officials seized $3.6 billion worth of bitcoins – their largest cryptocurrency seizure ever – linked to the 2016 hack of crypto exchange Bitfinex.
Following Russia’s invasion of Ukraine, authorities are now also concerned about the possible use of crypto to help sanctioned Russian individuals and businesses evade restrictions.
Crypto proponents say it is very difficult to launder funds through digital currency because all transactions are held public on an immutable record-keeping system known as blockchain.
Climate change
It’s a more subtle point, but Biden also dropped a mention of the pure energy cost baked into digital currencies like bitcoin. He wants the government to explore ways to make crypto innovation more “responsible”, reducing any negative impact on the climate.
Bitcoin relies on a mechanism known as proof of work to confirm transactions and generate new monetary units. A decentralized network of computers compete to solve complex mathematical puzzles to mine cryptocurrency. The more computing power a miner has, the more likely they are to be rewarded with new bitcoin.
This has raised alarm bells for policymakers around the world, with China even banning crypto mining completely last year. This decision led to an exodus of crypto miners from the country to the United States and other countries, such as Kazakhstan.
American competitiveness
Part of the language of the White House announcement is aimed at giving the United States a competitive advantage over other countries when it comes to crypto development. This is particularly important now that China has effectively prohibited cryptocurrencies.
Biden instructed the Department of Commerce to “establish a framework to drive U.S. competitiveness and leadership in leveraging digital asset technologies.”
Several crypto industry figures have called for such action, including the bosses of Coinbase, Kraken and the Winklevoss twins’ Gemini exchange.
The Blockchain Association, an organization that represents several well-known crypto companies, said Wednesday that Biden “has the opportunity to ensure America remains the world leader in tech innovation for years to come.”
digital dollars
Finally, the Biden administration also wants to explore a digital version of the dollar.
It comes as China has led the charge towards central bank digital currencies, or CBDCs, with more and more people using smartphones to make payments and manage their finances.
Biden does not say whether the United States should launch its own digital currency. Instead, he’s asking the government to grant “urgency” to researching and developing a potential CBDC.
Last year, the Federal Reserve began exploring the potential issuance of a digital dollar. The central bank has released a long-awaited report detailing the pros and cons of such a virtual currency, but has yet to take a position on whether it thinks the United States should issue one.
While CBDCs could quickly speed up the settlement of payments, policymakers are evaluating a number of issues related to financial stability and privacy.
‘Decisive moment’
Implementation of the new policy agenda removes a key source of uncertainty for an industry that has already been rocked by numerous regulatory setbacks and scandals.
Earlier this year, crypto startup BlockFi was hit with a record $50 million fine by the U.S. Securities and Exchange Commission over allegations that it violated securities laws with its retail loan product. The penalty was part of a larger $100 million settlement that included payments to 32 states.
Coinbase also encountered issues with the watchdog, although it managed to avoid penalties. The SEC threatened Coinbase with legal action over a BlockFi-like product that offered users interest payments on their crypto holdings. The company later dropped its plans for the service.
“This is a watershed moment for crypto, digital assets and Web 3, similar to the government-wide awakening to the commercial Internet in 1996/1997,” said Jeremy Allaire, CEO of the company. of Circle cryptography, on Twitter.
Crypto investors seemed to agree. Bitcoin prices surged above $42,000 on Wednesday on optimism over the US executive’s action.
Clarification: This story has been updated to clarify that President Biden’s decision was an executive action.
