Biden’s crypto order: sea change for digital assets?

With privately issued digital assets reaching a combined market capitalisation of $3tn – a more than 20,000% increase since November 2016 – it is no wonder that the administration of president Joe Biden has turned its attention to establishing the first coordinated federal digital asset strategy for the US.

Signed on March 9, the long-awaited executive order, ‘Ensuring Responsible Development of Digital Assets’, focused on two main objectives: increasing oversight on existing digital assets activities to protect consumers/investors/businesses, mitigate systemic and illicit finance risk, and foster financial inclusion; and the potential design and deployment options of a US central bank digital currency (CBDC).

A key priority is for the US to take a leading role in international engagement regarding governance of digital assets, working with international authorities to collectively “promote robust standards and a level playing field”.

Through the “first-ever, whole-of-government approach”, Mr Biden is now marshalling a multitude of financial regulatory agencies to deliver policy recommendations, including potential regulatory and legislative actions, across a broad spectrum, and under tight timelines.

In a statement, secretary of the Treasury Janet Yellen, whose team will be working on a report on the future of money and payment systems among other things, said that they will be guided by “consumer and investor protection groups, market participants and other leading experts”, which gives financial services players an opportunity to provide input.

For many crypto-philes, the executive order marks a coming of age for the digital assets market. In a statement, Lawrence Wintermeyer, executive co-chair of Global Digital Finance, a crypto-assets and digital finance industry membership body, said that the order “affirms the legitimacy of the crypto and digital asset sector in the global economy and society today, and the important role this most innovative sector plays to continue to meet many of the challenges we face both now and into the future”.

Sandra Ro, GDF board member, and CEO of the Global Blockchain Business Council, added that this was just the beginning. “Much more work has to be done to get balanced rules in place to create opportunities and jobs, build bridges across old-school regulatory frameworks and laws, step up public-private sector dialogue to ensure both thrive, and to creatively reimagine how we keep financial systems safe and stable while building more resilient and sustainable ones,” she said.

However, Mr Biden’s spotlight may also generate some negatives for the burgeoning sector that has not been as heavily regulated as the banking industry. According to several legal eagles, the principle of “same business, same risks, same rules” suggests that there may be increased regulatory and licensing requirements for cryptocurrency exchanges and issuers coming down the pipeline.

Additionally, in light of the ongoing Russia-Ukraine conflict, the Biden administration is expected to be examining whether digital assets are being used to circumvent US sanctions. In the same week as the order, Treasury Department’s Financial Crimes Enforcement Network issued an alert reminding financial institutions, including banks and money service businesses, of their obligations to report suspected sanctions evasion activity.

In the banking industry, the executive order elicited a muted response. The Bank Policy Institute (BPI), a public policy, research and advocacy group, welcomed the potential greater clarity in the regulatory environment for banks and other financial institutions, and said it was “optimistic” that the order would help to foster responsible innovation.

However, it was less positive when talking about the potential US CBDC, pointing to past BPI research which concluded that CBDCs would “pose considerable and unavoidable costs to the financial system and economy while producing few, if any, tangible benefits”.

The American Bankers Association (ABA) also raised concerns around the creation of a US CBDC. “We urge the administration and the agencies involved to carefully consider the implications of a US CBDC, which could fundamentally reshape our banking and payments system to the detriment of bank customers and their communities,” said Rob Nichols, ABA president and CEO, in a statement.

Joy Macknight is editor of The Banker. Follow her on Twitter @joymacknight

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