Biden’s Executive Order to Set the Stage for Digital Assets Regulation
As blockchain technology use continues to grow, President Biden’s administration is prepared to launch a multifaceted digital assets regulatory regime. In March 2022, President Biden signed an executive order titled “Ensuring Responsible Development of Digital Assets” (“Executive Order”), which directs research efforts across numerous agencies for the implementation of regulations on cryptocurrency and blockchain-recorded exchanges. (Executive Order). Rather than proposing a specific regulation or policy, the Executive Order reflects a “whole-of-government” approach requiring the executive branch and its administrative agencies to develop a comprehensive regulatory framework. Id.
The Executive Order recognized the rapid growth of the digital assets ecosystem, pinpointed industry-specific risks, and assigned various tasks to federal agencies including a mandate to research appropriate areas for regulation, draft action plans, and propose administrative rules and policies. Id. President Biden’s Order asked 23 federal agencies ranging from the Department of the Treasury to the Department of Homeland Security to the Environmental Protection Agency to play a role in shaping the digital assets regulatory regime in the United States (“U.S.”). (Luigi De Ghenghi, et. al., Davis Polk).
The Executive Order has six principal focus areas: (1) the protection of consumers, investors, and businesses, (2) financial stability and the mitigation of systemic risk, (3) the prevention of illicit finance, (4) the reinforcement of U.S. leadership in the global financial system, (5) financial inclusion, and (6) the support of responsible technology advancement and innovation. (The White House Fact Sheet). In focusing on these themes, the Executive Order also emphasized a broad range of risks associated with blockchain technology that impact the entire digital assets ecosystem, including data protection, privacy, disclosure of risks to investors, national security, and evading sanctions. (Executive Order). Consequently, one of the primary goals of the Executive Order is ensuring that digital assets are developed and implemented in a responsible manner. Id.
Additionally, President Biden asked the Federal Reserve to research and explore the creation of a U.S. Central Bank Digital Currency (“CBDC”). (Executive Order). The CBDC would be a digital version of a physical U.S. dollar and would be a liability of a central bank. (Marco Quiroz-Gutierrez, Fortune). A CBDC could reduce transaction costs, especially for cross-border transactions, which traditionally require high transaction fees if done through a bank. Id. The CBDC could also expand access to the financial system, especially for those American neglected by the traditional banking system, with fewer risks than cryptocurrencies because of its backing by a federal central bank. Id.
The Executive Order sparked positive responses. Jerry Brito, the executive director of crypto think tank Coin Center, is pleased to see the U.S. government recognizing cryptocurrency as “a legitimate, serious, and important part of the economy and society.” (Jerry Brito, Twitter). Cleve Mesidor, a public policy advisor at the Blockchain Association, praised the Executive Order as making safe financial services more accessible to working- and middle-class Americans who “have been locked out of the traditional financial system,” but are the leading force in adopting cryptocurrency. (Alex Gailey, Next Advisor).
Other experts also commended the overall approach of the Executive Order. Teana Baker-Taylor, the chief policy officer of the Chamber of Digital Commerce, believes that the coordinated governmental effort is going to create regulatory clarity and make the digital assets ecosystem more attractive to institutional investors, who often need regulations as reassurance in emerging areas such as digital assets. (Jason Brett, Forbes; Alex Gailey, Next Advisor). Taylor applauded the Executive Order for not hastily making policy, but rather calling for further research and analysis to discover how digital assets regulation should develop and be implemented. (Jason Brett, Forbes).
Nevertheless, the Executive order also received criticisms and negative feedback. Some believe the Executive Order could “curtail opportunities that cryptocurrency provides for economic advancement” if the implemented regulations are overly restrictive. (John Berlau, USA Today). John Berlau from USA Today has warned that regulatory agencies must be careful not to exceed their authority conferred by Congress. Id. Former U.S. Treasury official Gregory Zerzan criticized the Executive Order as a “top-down government-run approach” and that regulations from more than twenty government agencies will likely hinder innovation. (Talia Kaplan, FOX Business). Further, the creation of CBDC could raise privacy concerns because the centralized digital ledger, as opposed to a decentralized digital ledger used by cryptocurrencies, may be more susceptible to hackers. (John Berlau, USA Today). Finally, the use of the CBDC would require individuals to deposit their money with the federal central bank, which may reduce deposits at private financial institutions, further affecting the availability of business and consumer credit. Id.
While the Executive Order does not impose immediate regulation, it certainly sets the stage for the future digital assets regulatory landscape. The increasing rate of digitalization across the broader economy and regular delay of the government implementing regulations relating to existing innovations suggests that regulation is just around the corner. Appropriate regulation could mean that millions of Americans can feel more confident in utilizing cryptocurrencies. Regulations will also offer the protection needed for individual as well as institutional investors to invest in digital assets. The digital assets industry may very well benefit from regulation and enjoy accelerated growth, but only time will tell.