President Biden’s Executive Order on Crypto Regulation and Digital Assets
- President Biden signed an executive order directing a wide range of agencies to review the regulatory implications of cryptocurrencies and other digital assets, giving agencies six months to provide detailed assessments of the current state, including policy recommendations.
- The executive order represents only a very early development of a unified federal approach to crypto regulation; Nonetheless, this work portends a whole-of-government approach to digital asset regulation that, until now, lacked clear federal oversight, left market participants unprotected, and lacked US government backing and support.
- A significant portion of the executive order is devoted to the development of a U.S. central bank digital currency, or digital dollar, demonstrating a surprising degree of interest from the administration and governing agencies to examine the implications for a potential implementation.
On March 9, 2022, President Biden signed a long-awaited Executive Order (EO) committing to a comprehensive, whole-of-government approach to the regulation of cryptocurrencies and other digital assets. The OE calls on financial regulatory agencies to study digital assets according to six key priorities:
- consumer and investor protection, particularly with regard to financial risks related to insufficient protection of digital assets and cybersecurity;
- financial stability, as some digital asset players and platforms grow in size and complexity without concurrent regulatory oversight;
- illicit finance, with crypto playing a role in money laundering, cybercrime and ransomware, narcotics and human trafficking, terrorist financing, and even allowing countries to avoid sanctions regimes;
- U.S. leadership in the global financial system and economic competitiveness, noting that U.S. leadership in the global financial system must be “strengthened[d]”;
- financial inclusion, as crypto offers unique opportunities to reduce costs in traditional banking and serve the underbanked or unbanked; and
- responsible innovation, as some technological developments have broad implications affecting sectors ranging from finance and security to the environment.
The OE particularly highlights the Biden administration’s policy regarding the development of a US central bank digital currency (CBDC), noting that 100 other countries are currently exploring or piloting their own CBDC. Central bank money is reflected in the money issued and held by the Federal Reserve (the Fed). Digital currency represents both money held digitally (for example, in a bank account) and new categories of digital assets, including cryptocurrencies. A CBDC represents the combination of both – a digital currency issued and backed by a central bank.
The content of the executive decree
U.S. Central Bank Digital Currency Policy and Actions
Biden administration assigns “highest urgency to research and development efforts into potential options for designing and deploying a CBDC in the United States” and directs agencies to consider “actions necessary to launch a CBDC in the United States if it is deemed to be in the national interest. The order also notes the specific risks and benefits arising from internationally interoperable CBDCs.
Measures to protect consumers, investors and businesses
Digital assets and digital asset exchange platforms present new and increased risks of crime, including fraud and theft, with disparate financial risk potential for vulnerable market populations. Even when digital assets are not abused, data asset actors may demand protection that currently does not exist in law.
Actions to promote financial stability, mitigate systemic risk and enhance market integrity
While it is difficult to argue that the crypto and digital asset markets currently have systemic implications, digital assets reached a combined market capitalization of $3 trillion in November 2021, up from around $14 billion at the start of November 2016. The market has significant scale potential and faces challenges financial stability risks, if not present, but future, posed by digital assets. .
Actions to limit illicit financing and associated national security risks
Digital assets and cryptocurrencies are attractive both as a target and an enabler for a wide range of cybercrimes, including money laundering, terrorist and proliferation financing, fraud and theft schemes and Corruption.
Policies and Actions Related to Promoting International Cooperation and U.S. Competitiveness
Technological developments are increasingly cross-border and benefit from international cooperation. The United States remains committed to existing work conducted in collaboration with key international partners, including through forums such as the G7, G20, FATF, and FSB.
For a market that fluctuated between $1 trillion and $3 trillion during Biden’s presidency, the president’s EO on crypto and digital assets represents a formative moment – crypto regulation has so far faced a patchwork of sometimes inconsistent agency guidance that left consumers in need of regulatory protection. By creating a predictable regulatory environment, the U.S. government can drive the growth of digital asset development and help U.S. fintechs compete in global markets, with the possibility that this competition will eventually happen via a U.S. digital dollar. Perhaps the most beneficial outcome will simply be the grant of some sort of formal legitimacy, with cryptocurrency market capitalization increasing by 6.2% within 24 hours of the executive order being issued. Thanks to the efforts of various financial services regulatory agencies, the Wild West crypto can be tamed.