President Biden has issued a long-awaited Executive Order (EO) detailing broad plans to create a framework for the regulation of cryptoassets in the US.
The EO represents the US’ first whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.
In a joint statement, NEC Director Brian Deese and National Security Advisor Jake Sullivan commented: “The EO will help position the US to keep playing a leading role in the innovation and governance of the digital assets ecosystem at home and abroad, in a way that protects consumers, is consistent with our democratic values and advances US global competitiveness.”
The issuance of the EO follows earlier government moves targeting cryptoassets. This included a report from the President’s Working Group on Financial Markets in November 2021, which urged Congress to swiftly address concerns about the regulation of stablecoins, with suggestions that stablecoin issuers should be regulated in the same way as banks.
In October 2021, the Office of Foreign Assets Control (OFAC) launched a new set of guidelines on the virtual currency industry for financial sector compliance teams.
6 Digital Asset Priorities
The new Executive Order also highlights growing concerns about Russia using crypto to mitigate the impact of some sanctions. Reuters reports that in March the US Treasury Department issued guidance to cryptocurrency companies over fears of Russian cyberattacks.
Around 16% of adult Americans – approximately 40 million people – are thought to have invested in, traded, or used cryptocurrencies, which has exploded in recent years from $14bn in 2016 to surpassing a $3tn market cap by November 2021.
The EO calls for officials to develop proposals within 180 days, and puts forward a national policy for digital assets across six key priorities:
- Consumer and investor protection
The Department of the Treasury and other agencies are to assess and develop policy recommendations to address the implications of the growing digital asset sector. Regulators are encouraged to ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.
- Financial stability
The Financial Stability Oversight Council is charged with identifying and mitigating systemic financial risks posed by digital assets and developing policy recommendations to address any regulatory gaps.
- Illicit finance
The EO puts an unprecedented focus on coordinated action across all relevant government agencies to mitigate illicit finance risks related to crypto. It directs agencies to work with international partners to ensure frameworks and capabilities are aligned and responsive to risks.
- US leadership in the global financial system and economic competitiveness
The Department of Commerce is to establish a framework to drive US competitiveness and leadership in digital asset technologies. This will serve as a foundation for agencies to integrate as a priority into their policy, research and development, and operational approaches to digital assets.
- Financial inclusion
The EO affirms the need for safe, affordable and accessible financial services to inform the US approach to digital asset innovation, including impact risk. The Secretary of the Treasury is to produce a report on the future of money and payment systems, to include implications for economic growth, financial growth and inclusion, national security, and the extent to which technological innovation may influence these factors.
- Responsible innovation
Concrete steps need to be taken to study and support technological advances in digital asset systems – prioritizing privacy, security, combating illicit exploitation, and reducing negative climate impacts. There have been concerns about the environmental impact of crypto mining – energy access/prices and wider moves related to the COP summits. Firms should expect the convergence of energy/crypto to be a growing topic this year.
The Executive Order also demands urgent research into a potential Central Bank Digital Currency (CBDC). It directs the US government to assess the technological infrastructure and capacity needed to deliver this, and encourages the Federal Reserve to continue its own research, development, and assessment efforts into a digital currency.
The White House says that more than 100 other countries are already considering or introducing a digital currency. Several other major global economies, particularly China, are at a more advanced stage with their own projects.
The price of bitcoin rose by more than 10% overnight after a draft of the EO was inadvertently published. Cameron Winklevoss, co-founder of cryptocurrency exchange Gemini, posted on social media that the executive order was a “constructive approach to thoughtful crypto regulation.”
This EO lays the groundwork for future reform and provides more clarity about which agencies should be regulating the different parts of the crypto framework. It also gives insight into the kind of activities likely to fall outside the scope of legislative frameworks in the future. Firms should keep an eye out for further developments, which may move faster than previously expected.
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Originally published March 11, 2022, updated March 11, 2022
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