US President Joe Biden on March 9th, 2022 recently issued a wide-ranging crypto executive order that covers the entire cryptocurrency industry. We reached out to Crypto industry experts on their insights and views on how this will change things – good or bad. Here’s what they said…
Jonathan Teplitsky Founder of NFT Platform Pipe Flare Manager Community growth at Horizen/Horizen Labs And Pipeline Marketing CEO
This is a positive development overall for the digital asset industry, with the administration recognizing that crypto is here to stay, and acknowledging that any regulatory oversight must foster innovation and empower the U.S. to be a global leader.
Digital assets, along with blockchain policy, seem to still be nonpartisan, as there is no clear “Republican vs. Democrat” divide.
There is support for a responsible approach for the U.S. to stay globally competitive across the political spectrum.
The U.S. is already far behind other countries in terms of legislation and infrastructure.
Many blockchain companies deliberately start large corporations offshore (like Panama) due to the regulatory uncertainty in the States, which moves tax revenue and innovation offshore.
More comprehensive legislation will bring these companies, along with their technologies, back to USA.
Jonathan Manzi CEO of Beyond Protocol
Biden’s Crypto Order and Crypto ETF Approval
With Biden prepared to sign an Executive Order today regarding the study of cryptocurrencies, is there any expectation that this could bring the SEC closer toward approving a spot bitcoin ETF that other countries have allowed?
I suppose “closer” is accurate — but digging into the White House’s official remarks on the matter, any impact on the approval of a spot Bitcoin ETF will be likely indirect and delayed.
Biden’s remarks on Tuesday — and the text of a fact sheet released by the White House this morning— make it clear that the Executive Order will be more of broad outline on the government’s general strategy and approach to crypto regulation, rather than an attempt to take any immediate direct action on specific issues.
Further, the SEC’s primary issue with a Bitcoin spot ETF centers around their contention that there’s significant potential for manipulation of the BTC price index — a concern House Representatives Tom Emmer (R-MN) and Darren Soto (D-FL) have characterized as overblown, citing the delay of a spot ETF approval “arbitrary and capricious” in light of the recent approval of a futures ETF, which they contend is no less risky for investors.
Leaked details of the Executive Order confirm that in most cases, regulatory agencies are being given 180 days to produce reports on regulation — which, in conjunction with President Biden’s remarks yesterday, strongly indicate that the government will be taking its time with specific regulations.
“Measure twice, cut once” seems to be the mindset here.
While the Executive Order may not bring us significantly closer to a Bitcoin spot ETF in the near-term, the White House’s generally positive and seemingly careful approach to regulation is certainly a step in the right direction.
Jonathan Manzi is the CEO and co-founder of Beyond Protocol, the company developing a new internet based on a universal platform that enables inter-devices communication.
He is considered a global expert in frontier technology, specializing in building multiple successful businesses in divergent industries.
Prior to Beyond, Manzi left Stanford University where he presided as the Chair of Entrepreneurship and co-founded a non-profit for youth entrepreneurship, to co-found and serve as CEO of ink.
Jaime Baeza CEO at ANB Investments
Today’s Executive Order on the responsible development of Digital Assets is very positive for the space.
Regulation is necessary for the development of the industry.
The most positive aspects are:
(i) policy makers and regulators are educating themselves on different aspects of the industry, whilst maintaining dialogue with key players in the ecosystem
(ii) recognition by policymakers that the US needs to maintain a technological leadership in this rapidly growing space, supporting innovation while mitigating risks and
(iii) continue exploring the possibility of a CBDC.
For a successful and efficient regulation of the industry, it is vital regulators take the time and effort to educate themselves, in an open dialogue with key stakeholders and industry insiders.
This dialogue will likely conclude that digital assets are a completely different asset class, and that regulation needs to be tackled accordingly.
Digital assets do not fall into current existing asset categories: commodities, currencies, equities etc. Thus, regulation is best approached from a blank canvas.
ANB is growing rapidly as it caters for institutional investors who want exposure to Crypto – with the least possible risk.
ANB has two funds, up 31% and 9.6% in the last year, respectively
Technology is core to how ANB generates increased returns, with less risk
It was co-founded by Andres Artinano – one of the world’s leading online poker players, and a technology specialist
The other co-founder (and CEO) – Jaime Baeza, is a former institutional trader at Credit Suisse with 16 years’ experience in traditional finance and crypto.
Richard Levin Chair of the FinTech and Regulatory Practice at Nelson Mullins Riley & Scarborough LLP
Unlike China, who has launched a pilot CBDC, the United States is exploring the potential legal and regulatory issues associated with the creation of a digital currency.
- Of the countries with the largest central banks, the U.S. is the furthest behind. The U.S. appears to be at least four to seven years behind China in the development of a digital currency, which presents substantial risk to the U.S. dollar.
- Federal Reserve Chairman Jerome Powell believed that a potential CBDC would complement the use of cash and bank deposits rather than replacing them. Powell has emphasized as the largest central issuer of the world’s reserve currency, it is better to be right than first.
- The risk, however, is that waiting too long, the Federal Reserve will allow a fractured digital currency ecosystem to evolve which could undermine U.S. interests.
Because China does not seem to be invested in privacy rights, it will be important for the U.S. to create framework that protects personal information on a worldwide scale.
Kyla Curley Partner at StoneTurn Group LLP
Earlier this week, President Biden issued an Executive Order on Ensuring Responsible Development of Digital Assets to align U.S. regulatory approach in response to the ever-growing development and adoption of digital assets and blockchain technology.
The Order acknowledges the significant benefits and opportunities these technologies can bring, from financial gain through investment or faster, cheaper cross-border settlements, to socially minded issues like financial inclusion, but warns against the equally significant, if not greater, economic, national security and environmental dangers.
Notably, the Order recognizes the importance of the role cryptocurrency and CBDCs do and will continue to play in the global financial markets, and the necessity of continued U.S. leadership in studying and developing the technology, as well as setting regulatory and enforcement standards that align with U.S. values and further national interest.
Through the forward-looking approach of the policy, the Administration signals that digital assets are not a fad and hold a place in the future and landscape of the global economy.
Perhaps in response to some of the perceived turf fights between certain regulatory agencies, the Order also lays out and calls for an aligned, interagency approach and requires near-term assessments, reports and recommendations.
Interestingly, while the Order does cite ‘inconsistent controls to defend against certain key risks’ as a primary driver for the need for a coordinate U.S. approach, the Order does not suggest an urgency for new regulations or an overhaul of existing regulations over financial markets.
Instead, it points to and encourages compliance with existing legislation and regulatory standards related to financial markets, products and infrastructure, and that the forthcoming studies may illustrate regulatory gaps to address.
As an example, the Order ‘encourages,’ but does not require, the SEC, CFTC, Federal Reserve, FDIC, and OCC to ‘consider the extent to which investor and market protection measures within their respective jurisdictions may be used to address the risks…and whether additional measures may be needed.’
So, while it is possible that additional or revised frameworks may be required, there should not be an expectation that those regulations will happen anytime soon.
Sentiment over the low likelihood of new regulations may be split among service providers and operators in this space.
On one hand, new rules would likely require new or updated controls or compliance programs, new surveillance or monitoring tools, and/or increased reporting obligations, and therefore potential significant increases in the cost of compliance.
On the other hand, companies are still not clear whether or how they fit into existing regulatory frameworks and therefore whether they are compliant with whichever regulator claims jurisdiction.
Similarly, while the Order does require a coordinated action plan to mitigate illicit financial and national security risks, including money laundering, cybercrime, terrorism, sanction evasion and human rights violations, and also requires a plan to increase digital asset service providers’ compliance with AML and CFT laws and regulations, it does not suggest the need, or immediate need, of new or revised guidelines for these service providers.
Nicole Valentine FinTech Program Director at Milken Institute Center for Financial Markets
At a time when certainty and clarity is necessary in the development of payment innovations and digital assets, President Biden’s Executive Order is a positive step in the right direction towards creating a playbook and framework that the industry and emerging ecosystem can be guided by.
I commend President Biden for issuing an Executive Order that reflects the values we hold here at the Milken Institute’s FinTech Program – access to safe and affordable financial services and equity and inclusion in the benefits of responsible financial innovation.
Kiran Nasir Gore Professorial Lecturer in Law International and Comparative Law Program at The George Washington University Law School
President Biden’s executive order is a gamechanger for the crypto industry because it signals to the nation – and the world – that the US perspective on crypto is that first, there should be a stable regulatory framework for crypto and second, that framework will enable creativity and innovation.
It also means that we are developing a national policy toward crypto.
This will be useful when considering how and where to resolve commercial disputes in this space. In the past I would have recommended international arbitration because national courts may be beholden to national policy objectives – such as China where the is a ban on all crypto transactions and Russia where there’s a lot of rhetoric around the ‘digital ruble’.
Now the US is moving toward having a policy too. This is truly an area to keep watching for developments.
Austin Reid Chief Staff at FalconX
It’s great to see the White House emphasizing the importance of digital asset innovation in the United States.
The U.S. has a unique opportunity to lead in digital assets and further cement itself as the leading capital markets and innovation hub in the world.
We look forward to dialog on the specific use cases of different digital assets and their applications – most of which are not actually intended to be currencies in the traditional sense – but could ultimately enable many of the White House’s objectives of greater financial inclusion, privacy, and efficient markets.
The timeline of the agencies proposals and any corresponding legislation will be relevant given the upcoming November midterms and potential changes to majorities in congress which could influence the ultimate legislation and the impact on the industry.
Boris Revsin Head at Republic Capital
For the past few years, cryptocurrencies and blockchain technology regulation have been top of mind of the presidential office, regulatory agencies, and law enforcement.
On March 9th, 2022, President Biden signed the first ever Executive Order outlining the risks and benefits of digital assets and blockchain technology.
While this executive order marks a pseudo-clampdown to regulate aspects of crypto like illicit finance & investor protection, it generally recognized crypto as a breakthrough technology worthy of national support.
We view this executive order as lukewarm, meaning we stay hopeful yet cautious regarding political agendas surrounding crypto.
We believe that education still stands at the forefront, and decision makers have a duty to educate themselves around the benefits of smart contracts for the US population.
The executive order is a hopeful signal for crypto as the first item addressed is for the administration to support the research and development of specific use cases of blockchain technology.
Aspects of a CBDC were mentioned, and while it still may take many years for full deployment of a US digital currency, having the government cautiously working behind the scenes to promote use cases of blockchain is a clear signal that they generally do not want to stifle technological innovation happening in the US.
Investor protection was a significant development since US investors are subject to the many risks associated with capital inflows to crypto assets. Without stifling the general aspect of decentralized technology and violating the Constitution, the Order encourages regulators to provide sufficient oversight to any systemic financial risks posed by crypto assets.
In general, many crypto professionals welcome thoughtful regulation around this subject.
Many understand that crypto won’t stay the “wild west” for too long, however, the fear is a total clampdown and legislation that runs counter to actual policy goals.
Illicit finance was thoughtfully mentioned in the order, and there is general consensus across all US agencies that something needs to be done about bad actors in the space.
All in all, it is known that cryptocurrency is not a blackbox.
It is open-source, where all transactions are published on a public network.
Many innovative companies like Chainalysis and Merkle Science work in conjunction with law enforcement agencies, providing compliance and investigative solutions that track illicit transactions and alert such agencies if money is sent to sanctioned addresses, darknet markets, and money laundering schemes.
The order also stated that the Administration will continue to work to form a leadership committee around regulation of cryptocurrency and blockchain technology.
This is important because alignment across all agencies making crypto a top priority within their specific committee enables a top-down approach to applying the necessary requirements without stifling the voice of citizens.
Scattered, fragmented thoughts around legislation never leads to resolution, and it is important that all viewpoints of US agencies and the office are strategically aligned.
Jawad Nayyar Co-founder and Chief Vision Officer at DAO PropTech
President Biden’s long-awaited executive order regarding cryptocurrency is here.
This is the first step towards the acceptance of cryptos as a significant asset class that can’t be ignored any further. While it hasn’t yet defined anything regarding cryptos, the order essentially kickstarts the process of creating regulations for this decentralized, unregulated sector.
The executive order instructs federal agencies to study crypto as a first step towards updating the US financial regulations.
Crypto by design is a trustless and permissionless system, which doesn’t need acceptance from any central authority.
Essentially, the only thing this order affects at the moment is the trust and sentiment of the general public towards cryptocurrencies.
This order seeks to mainstream cryptos as an extension of the existing system, the same system that cryptos were created to disrupt.
In the long run, this might lead to cryptos being regulated, more closely monitored, and taxed.
The President has even urged the government to consider a central digital currency, which might see the Federal Reserve issue a currency that’s pegged to the dollar.
While it might involve digital ledgers and wallets like crypto, a centrally controlled currency is merely a caged, flightless bird since it ignores the very fundamentals of crypto’s anarcho-capitalist roots of decentralization and anonymity.
Still, this effort signals that at the very least, the largest economy in the world foresees its financial systems being rattled by crypto.
It is still too early to say which way the tide will turn, or what new regulations will be formulated, if at all.
What is certain, is that the best-case scenario for legalization and mainstream adoption of cryptos might see a compromised approach, devoid of their true spirit.
The USA is a world power, the effects of its stance on cryptos will create an impact at the global level.
At the very least, it is a positive step in the right direction that a superpower has initiated a dialogue on this (approx.) $2 trillion revolutions.
Dan Hannum Chief Operating Officer at ZenLedger
Biden’s Executive Order signifies that crypto is becoming a legitimate asset class in the eyes of the government.
The United States has formally recognized that crypto is a key part of our future and that the US must be a leader.
We are excited that the government is trying to embrace and educate themselves on crypto rather than attempt to extinguish a burgeoning asset class.
Government agencies, like the IRS, have doubled down on compliance as adoption of the asset class speeds up.
This move by the Biden Administration will ease concerns of many who have been hesitant to invest, as it appears the government recognizes crypto as a legitimate and important part of the future economy.
The ripple effects of this order will be felt across the coming months and years but will most likely lead to clearer guidance specifically around DeFi, NFT and DAO related taxation.
As consumers and businesses continue to use and accept crypto as a form of payment, we must not run from this new wave of government involvement but embrace these measures as they will enable the US to take a more coherent approach to oversight and will inevitably lead to increase on shore innovation.
Larry Pruss SVP and Crypto Lead at SRM Corp
On March 9th, The Biden Administration issued its anticipated executive order seeking to coordinate efforts among federal agencies to craft a national policy for digital assets.
The order aims to “ensure that safeguards are in place and [to] promote the responsible development of digital assets.”
This order demonstrates the continued effort to bring digital assets, including cryptocurrency, into the spotlight, which is positive for financial institutions that actively are or planning to get involved in this space.
We see the order as a constructive effort to build a framework as the United States plays catch-up to other countries.
It is a streamlined approach that strikes a delicate balance between backing innovation and protecting consumers and businesses.
The review tied to financial inclusion is specifically interesting. SRM’s recent report on Cryptocurrency in 2022 noted that ownership of crypto assets is particularly high among underrepresented demographic groups.
A Morning Consult study found that 37% of Americans holding crypto are considered underbanked.
Younger age brackets and non-white groups, both considerable growth opportunities, are significantly engaged.
Overall, the issuance of the report highlights that cryptocurrency will remain relevant in the United States for years to come.
There is a window of opportunity for banks and credit unions that do their homework (look at deposit outflows and thoroughly vet third-party providers) and are able to formulate an effective strategy to meet the needs of customers and members keen on holding crypto.
SRM has helped more than 1,000 financial institutions add $5+ billion of value to their bottom line in critical areas such as payments, digital transformation, core processing, artificial intelligence, and operational efficiency.
SRM’s decades of experience have lowered costs, grown revenues, increased productivity, expanded customer satisfaction, and provided a competitive edge for clients in an environment of constant and accelerating change. Visit www.srmcorp.com for more information and follow us on LinkedIn and Twitter for timely and relevant insights.
Eric Bell Managing Director at Progress Partners
The executive order signed this week is a welcome, albeit overdue, game-changer for the crypto markets, which hopefully leads to increased investment and funding to fuel U.S. innovation and dominance in the sector.
The latest executive order dovetails with the White House’s Executive Order on Improving the Nation’s Cyber Security which helped galvanize public and private efforts to combat increasingly sophisticated cyber attacks.
Both provide concrete direction with specific deadlines that give market participants confidence that the U.S. is to committed to protecting its critical infrastructure and financial markets.
Saad Zariff Vice President of North America at Wahed Inc An Ethical Investment Company
One interesting aspect of the Biden’s Executive Order on cryptocurrency this week was its focus on producing a report on the environmental costs of cryptocurrencies.
I believe it could be a sign of a forthcoming ESG ceiling on the Crypto market’s ongoing rise.
In fact, previous research my organization Wahed conducted illustrated that 67% of U.S. investors don’t believe that investing in cryptocurrencies is socially responsible due to environmental concerns.”
As cryptocurrency continues to take a greater weight in portfolios, any ESG funds exposed to the crypto market will need to be more transparent with their screening methodologies to decide if they can still be considered ESG friendly.
For instance, while investment in coins that requires mining and energy consumption may not be a fit for an environmentally focused ESG fund, investments in the broader blockchain ecosystem could certainly be a fit for more socially focused funds.
Alexandra Scheibe, Joseph Evans and Rachel Rosen McDermott Will & Emery
U.S. Leadership in the Global Financial System and Economic Competitiveness
The Order includes a section which focuses on gaining “United States competitiveness” globally on the development of cryptocurrency.
The Biden administration has directed the Department of Commerce to work with relevant federal agencies to reinforce United States leadership in the global financial system and in technological and economic competitiveness in order to sustain United States financial power and promote U.S. economic interests.
The Order also tasks the State Department to develop ways to cooperate with international authorities to collectively promote robust standards and a level playing field in the cryptocurrency.
This is perhaps the most important portion of the Order for the U.S. cryptocurrency industry.
Because of the current patchwork of regulations in the U.S., many cryptocurrency market participants opt to avoid the U.S. entirely.
For this reason, the U.S. has not yet realized its maximum potential in the cryptocurrency industry.
Our hope is that this portion of the Order will ultimately result in workable regulations that fit cryptocurrency market participants of all sizes.
This would welcome new market participants and put the U.S. cryptocurrency market on an equal playing field with the rest of the world.
Consumer and Investor Protection
In furtherance of the stated goal of protecting consumers, investors, and businesses, the Order directs a series of regulatory agencies and other appointees to issue reports within the next 180 days.
The required reports cover virtually all aspects of consumer protection, including ensuring “affordable financial services” and “cybersecurity.
President Biden is requesting “policy recommendations, including potential regulatory and legislative actions” across a broad spectrum.
The Order also addresses technical issues and asks certain agencies to address the “effect of cryptocurrencies’ consensus mechanisms on energy usage.
Consumer protection has appeared to be a primary regulatory focus of the cryptocurrency industry to date. We do anticipate that these reports will suggest some regulatory enhancements in the areas of cybersecurity and customer protection issues.
The Order directs the Department of Treasury to develop a report on the future of money and payment systems, with an eye on protecting both United States and global financial stability and mitigating systemic risk. The Order repeats the general principle of “same business, same risks, same rules.
The Order suggests that there may be increased regulatory and licensing requirements for cryptocurrency exchanges and issuers.
The Order requires reports to address “financial stability risks” and “regulatory gaps.
While the Department of Treasury has provided some of the clearest guidance on certain regulatory regimes – such as which cryptocurrency market participants need to register as a money service business – we anticipate that these reports may provide some further clarification.
The Order includes a focus on eradicating illegal cryptocurrency activity.
The Biden administration has called for an “unprecedented focus of coordinated action” from federal agencies in mitigating illicit finance and national security risks posed by cryptocurrencies.
Federal agencies are directed to scrutinize how cryptocurrencies may undercut U.S. sanctions and efforts to fight money laundering.
The Order requires the U.S. Attorney General, in coordination with relevant agencies, to study and report on the role law enforcement agencies may have in detecting and prosecuting criminal activity and to provide recommendations on regulatory or legislative actions.
The Order also urges international collaboration.
Another key objective of the Order is to reduce inefficiencies that currently exist in the U.S. payments system while boosting financial inclusion for those who are typically underserved by the traditional banking system.
The order directs the Treasury to work with relevant agencies to promote equitable access to safe, affordable and accessible financial services as a national interest.
Promote Responsible Innovation
The Biden Administration states that it aims to direct the U.S. Government to take concrete steps to support “technological advances” in developing the cryptocurrency industry.
But the Biden Administration also states that it will prioritize privacy, security, combating illicit exploitation, and reducing negative climate impacts.
Exploration of a Central Bank Digital Security
The Biden administration will also formally consider the creation of a possible U.S. digital currency, or a central bank digital currency (CBDC) backed by the Federal Reserve, similar to the digital currencies that have been developed in other countries.
While CBDCs have the potential to accelerate the settlement of payments, issues concerning financial stability and privacy remain.
The Order directs the U.S. Government to assess the risks, benefits, technological infrastructure and capacity needs for such CBDCs in a manner that would protect Americans’ interests while also providing immense benefits to U.S. communities who have suffered from insufficient access to financial services.
The Federal Reserve began working on exploring the issuance of a CBDC late last year but has not yet taken a position on whether it believes the U.S. should issue such digital currency.
Guy Gotslak President and Co-Founder at My Digital Money
The executive order is, more than anything, defensive.
The main goals of the EO are to protect the US’ financial position globally, make sure US regulations (both federal and global) are not circumvented using crypto, make sure crypto investors and users are protected legally, and that crypto as an industry is regulated in general.
These are not bad; we all want the same thing.
We want to protect investors, especially the small ones.
But the EO does not direct the government to take proactive steps to nurture the growth of technology.
We need to attract the best developers and innovators and create a country that will push forward this technology.
I didn’t see anything that talks about putting measures and steps in place to make sure we attract innovators and developers and reward them for new technologies.
Collin Plume Co-Founder at My Digital Money and CEO at Noble Gold Investments
Investors and consumers need to be protected, and the US dollar’s global position must be protected.
Knowing that the White House has these goals in their interest list is good, but the EO failed to address the heart of the problem.
The Russian-Ukraine crisis demonstrated crypto’s power to bypass regulations, institutions, and even the power of tanks and guns.
People are helping other people by donating crypto. Are we grasping the actual power of this?
It doesn’t seem so, because instead of zeroing in on how this technology can serve the US, we are thinking of ways to protect ourselves against it.
We need to realize that the only way we can defend America from the power of crypto is to get on its side.
Teens in Asia are creating applications so they can trade international goods in real time using crypto, and here we are (multiple US government agencies) writing policies.
We need policies, but we need to support and grow the technology ON OUR SIDE just as much.
Brock Pierce Bitcoin Foundation Chairman
Despite everyone’s worries that might come out in the Executive Order, it ended up being a really positive event for the whole cryptocurrency space.
For the first time, the United States Government will take a coordinated approach to understand the cryptocurrency space and come up with a framework for the United States to promote innovation, while at the same time managing the risk across all different federal agencies.
It also establishes a good starting point for understanding how a Central Bank digital currency, or CBDC, would look and benefit the United States overall.
Marcus Sotiriou Analyst at GlobalBlock
Bitcoin rallies as Biden’s executive order expected to provide crypto clarity
Bitcoin rallied 9% to over $42,000 this morning, as key points from Joe Biden’s executive order on crypto have been leaked. The order seems relatively benign, hence giving the market some clarity.
This is the “first ever, whole-of-government” approach to overseeing the sector in the US as it calls on the Treasury, Financial Stability Oversight Council, Federal Reserve and national security agencies to work on relevant sections of the crypto ecosystem.
As many investors had prepared for the downside risks of this event by waiting on the side lines, we are seeing many buy Bitcoin back in what appears to be a spot-driven rally.
Treasury secretary Janet Yellen’s comments were also revealed, as she said the order supports ‘responsible innovation’, which is a positive indication of what’s to come for regulation in the U.S.
Anne Termine Partner at Bracewell LLP
The White House Executive order on cryptocurrency is the policy statement that the industry was waiting and hoping for – one that recognizes the legitimacy of the cryptocurrency industry.
The order presents a balanced approach to cryptocurrency that both addresses the protection of customers and investors and the need for safety and soundness within the financial markets with an allowance for the continued responsible development of and innovation by the industry.
The Administration’s ultimate goal is to ensure the U.S. remains a leader in the development and oversight of this industry as it changes the face of the financial markets.
As for how this order will impact the various legislative proposals pending in Congress, it will probably be more difficult for any new legislation addressing the cryptocurrency industry to be passed during this election year.
The one area in which legislation seemed likely, namely stablecoins, presumably will be paused while the agencies research and prepare their reports in response to the Executive Order.
Based on recent hearings by the Senate Banking Committee and the House Financial Services Committee, there also did not seem to be bipartisan consensus on exactly what kind of legislation is needed to address stablecoins.
The second area where legislation seemed likely, that being a grant of authority to the CFTC to directly regulate digital assets that are commodities, still has potential because it appears to have bipartisan and bicameral support.
But this too likely will be paused so the Financial Stability Oversight Council (FSOC), of which the CFTC is a member, can prepare policy recommendations to address the financial risks and regulatory gaps posed by cryptocurrency per the Executive Order.
Aaron Cutler Partner at Hogan Lovells
The Biden Administration Executive Order has been in the works for quite a while.
We’ve been telling clients to expect this.
We understand that the EO was ready to be published earlier, but was delayed because of some disagreements on the document, but also because of current world events.
This is just one step in a long and complex policy-making process.
The President is directing various agencies to provide recommendations on policies related to cryptocurrencies over the next several months.
As is the case with previous EOs of a similar, sweeping nature, the EO solicits non-binding policy recommendations from regulatory agencies covering elements of the cryptocurrency and digital assets industry, consistent with their respective jurisdictions.
There are various reporting deadlines – some reports are due in 120 days; others are due in 180 days, for example.
We are advising clients that this process presents an excellent opportunity for industry to engage with the regulators.
Who’s doing what:
The Treasury Department will lead development of “policy recommendations to address the implications of the growing digital asset sector and changes in financial markets for consumers, investors, businesses, and equitable economic growth.
The Treasury Department will also produce a report on the future of money and payment systems.
The Financial Stability Oversight Council (“FSOC”) will look at systemic risk posed by digital assets, and recommend how to mitigate “economy-wide financial risk.”
The Commerce Department “willwork across the U.S. Government in establishing a framework to drive U.S. competitiveness and leadership in, and leveraging of digital asset technologies.”
The Federal Reserve will lead on researching, developing, and assessing efforts for a US Central Bank Digital Currency (“CBDC”)
How the White House is Selling it:
White House National Security Advisor Jake Sullivan said, “The E.O. will help position the U.S. 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 U.S. global competitiveness.”
Sullivan also cited, “the need to build robust consumer and economic protections into digital asset development.”
It’s an exciting time to be in this space.
Some are concerned about the government’s involvement in crypto, and that’s fair. However, the more the government gets involved, the more mainstream crypto becomes, and that attracts institutional money, and more widespread retail investors, and that buoys the whole ecosystem.
We hope this process will lead to a healthy balance between encouraging innovation and mitigating risk.
We hope that government and industry can work together to ensure the United States is an attractive home for innovative people and companies in the digital asset space.
The real work is beginning now.
Debra Geister, VP, Compliance and Regulations at Socure
Today, roughly one in 10 Americans have bought or sold cryptocurrency,” notes Debra Geister, VP Compliance and Regulations at Socure.
“One traditional barrier to crypto becoming a more adopted currency is acceptance, but cryptocurrency is not the enemy. It’s the way it gets used that is problematic.
President Biden’s new crypto executive order and its subsequent regulations will insure the safety and improve acceptance for crypto currencies, just as regulations do for banks.
The US government’s approach to regulatory framework will need to address controls that are balanced with an appreciation for the need to innovate.
If done right, oversight may help the industry become more widely accepted in the US.
Daniel N. Budofsky Partner at Pillsbury
The order is good news for the U.S. crypto industry, which operates under the constant threat of impending regulatory sanctions.
Due to the U.S.’s highly fragmented regulatory structure, many participants in the crypto economy have had to take on unknown legal risks because of the disorganized U.S. approach.
The order brings hope for a more orderly regulatory structure that will foster growth in the segment.
Currently, market participants who want to employ new blockchain based technologies in a legally compliant manner have been waiting to see how the regulators act.
By establishing 3-6-month study periods for regulators across the regulatory spectrum and by laying out the underlying goals for regulation, the executive order will require government stakeholders to start to take positions and open the conversation between regulators and the industry.
While some highly aggressive actors may be frustrated by coming regulation, the potential for greater clarity and sure legal footing will speed the convergence of digital assets and traditional finance.
Daniel Budofsky, a partner at Pillsbury Winthrop Shaw Pittman in New York, advises clients in a variety of industries such as financial services, blockchain technology, gaming, energy, consumer goods, real estate and pharmaceuticals.
Tally Greenberg Head of Business Development at Allnodes
Biden is correct in calling for cryptocurrencies’ regulations.
It starts with the idea that we will have to define the terms of crypto.
In proposing regulations for cryptocurrencies, everyone will have to agree on what they are.
The policymakers have to understand the types and functions of different cryptocurrencies, new financial instruments arising from DeFi, NFTs, smart contracts, and blockchains behind them all.
This will also aid in the process of rating crypto investments, and overall protect the public from misleading advertising and marketing, if the SEC proposes a standard for financial institutions to follow when assessing.
The next implication would be to install better security for crypto exchanges and investors that frequent these platforms. Billions of dollars worth of cryptocurrency were stolen from investors over the years.
Some of it relates to fraudulent ICOs or so-called “pump and dump” projects created for one purpose: to sell you air for substantial sums.
In addition, hackers continuously try to scam people by stealing their private keys, disguising as technical support, hacking wallets, and the list goes on.
But the biggest theft takes place on cryptocurrency exchanges, and proper regulations will protect consumers.
Regulations would also aid in the proliferation of blockchain technology and its new financial instruments, leading to the growth of our economy and promoting our well-being.
But at the same time, devising such legislation must be carefully thought through. After all, it is an unprecedented attempt at regulating a network of self-regulating people.
Joseph Stafford Partner in Intellectual Property Practice at Wilson Elser
The Executive Order is a significant and encouraging development for an asset class (i.e., digital assets) that recently surpassed the $3 trillion market cap.
That said, it would be naïve to suggest it will lead to relaxed legal or regulatory scrutiny.
For quite some time, the government’s view on cryptocurrencies focused on illicit activity: such as ransomware, sanction avoidance and terrorist financing.
While the EO suggests the government is now also considering the technology’s potentially positive impact, it still explicitly placed consumer protection and illicit finance as top priorities.
In this regard, it is worth noting that we are less than one month removed from the February 17, 2022 appointment of Eun Young Choi as the first-ever director of the recently-formed, National Cryptocurrency Enforcement Team (“NCET”). NCET was formed by the US Department of Justice to serve as a crypto-specific enforcement team charged with investigating and prosecuting complex cases involving the criminal misuse of cryptocurrency.
In addition, the NCET announcement was accompanied by news of the FBI’s new Virtual Asset Exploitation Unit, which will work with NCET and provide technical assistance and training related to blockchain analysis and asset seizures.
Thus, while optimism over the EO is appropriate in the crypto industry, it should be guarded and not impede ongoing, dedicated efforts to comply with current legal and regulatory requirements.
To wit, recently, the DOJ provided express notice that its approach to cryptocurrency crime is evolving beyond individual bad actors, and will also include corporate compliance with the Bank Secrecy Act and Anti-Money Laundering Act.
As such, companies (and individuals) engaging with cryptocurrency will still need to demonstrate implementation of compliance programs tailored to the unique risks in the blockchain ecosystem.
This may include systems for monitoring transactions that would allow for identification of illicit activity and prioritization of consumer protection.
Alex Dahan Co-Founder at PLAYSK8
The U.S. President, Joe Biden signed an executive order this week that will direct federal agency’s to explore potential risks and opportunities in the crypto space.
The order doesn’t go into specific detail on how the agencies will regulate the space, however a section in the order directs the Treasury Department to create a report on the “Future of Money” including how the current financial system doesn’t meet the needs of consumers today.
The executive order might have wide ranging impacts on the crypto space and how the U.S. views its standing as the world reserve currency.
The U.S. is setting the foundation to maintain its currency dominance by exploring ways to transition the dollar into a digital equivalent that is programmable.
The implications of the U.S. creating a digital dollar would have a massive impact on the crypto space, global financial markets, and geo-politics.
Countries like China have been heavily investing in the development of their own digital currency.
For the U.S. to maintain its position as the global reserve currency, transitioning to a digital currency is not just a way to stay competitive, but it will be a major factor in foreign policy decisions moving forward.
David Khalif Head of Operations at Viridi Funds
President Biden’s executive order is a strong signal to the world that the United States government will be instrumental in a digital asset future.
The executive order will have wide ranging implications including the creation of frameworks for government bodies to understand cryptocurrency, modernization of laws in the space, and potentially a central bank digital currency backed by the US government.
The government’s commitment to spending time and resources today will ultimately ensure that the US will continue to be a global leader for financial services in the 21st century.
BIO: David Khalif is the . Viridi is a registered investment advisor providing crypto-related investment products. The Viridi Cleaner Energy Crypto-Mining & Semiconductor ETF (“RIGZ”), is the first actively-managed ETF that invests solely in the crypto mining vertical consisting of companies that utilize energy sources to secure the bitcoin network. RIGZ uses proprietary valuation metrics to identify mining companies that are believed to have a strong prospect for growth, in addition to utilizing clean energy sources, in a tax-efficient manner. Follow him on twitter @DavidKhalif.
Michael Bahar Partner Eversheds Sutherland
The strategic, whole of government approach to digital assets the Biden Executive Orders takes carries great significance.
First, it further legitimizes cryptocurrencies and acknowledges their increasingly prominent role in a functioning and thriving economy.
Second, it signals to the global economy a US commitment to lead on digital assets.
Third, it focuses not just on the risks of digital assets, but on their current and potential benefits as well. As with any transformative technology– indeed with digitalization writ large– it is important for leaders in the public and private sectors to establish a process that identifies upsides as well as downsides, and that methodically finds ways to maximize the good while minimizing the bad.
That is what the Biden EO is setting out here. Fourth, it marks the beginning of a process, not an end, and that process will not necessarily be smooth.
Any Executive Order and subsequent interagency process only binds federal departments and agencies, not the Congress and not independent agencies like the SEC, CFTC, FTC and CFPB. But, leadership starts at the top, and this Executive Order puts the U.S. more squarely on a path to mainstream (and further regulate) digital assets in their varying forms.
Professor Pouyan Esmaeil Zadeh Assistant Professor of Information Systems and Business Analytics at Florida International University’s College of Business (FIU Business)
– President Biden’s cryptocurrency executive order may have two sides.
First, this initiative can hint that the US government has realized the potential benefits of cryptocurrency as an alternative means for investment, method of payment, or digital assets.
Thus, the officials may believe it is time to accept this newly-invented phenomenon and leverage this radical innovation to improve business models.
On the other side, it can signal that the government has decided to participate in this market and propose more controls, regulations, or directions.
– The cryptocurrency executive order can have both short-term and long-term effects on the cryptocurrency market. The first possible short-term effect can be a surge in cryptocurrency prices as a sudden market reaction to the first federal initiative around cryptocurrency.
The plausible long-term effects would be more individual and organizational cryptocurrency adoption (whether more regulations will be applied). Many (innovative) companies have been hesitating when to enter this market. They will make more significant efforts to include cryptocurrency in their strategic plans from now on.
– I think that the Central Bank or the Fed needs to introduce the US digital currency as soon as possible, and this executive order would smooth the process.
This digital currency may be different from other cryptocurrencies because it would be more in control than other types of crypto. The official entities (such as Central Bank) can apply more regulations, monitors, and mandates to the US digital currency.
However, since it is a centralized digital currency, the concern is how much industry traction it would attract and how many people would prefer it over other decentralized cryptos (such as Bitcoin, which does not need a third party).
The US digital currency (or digital dollar or other names) can gradually replace the fiat dollar in the international market, for example, for buying commodities (e.g., oil, gas, gold,…).
– This executive order indicates that officials, politicians, and governments have reached a point to recognize that cryptocurrency is not something that can be ignored.
Instead, governments can tap into the crypto opportunity to be a market leader in this section. Governments need to actively facilitate crypto transactions rather than limiting or regulating them.
Anndy Lian Founding Partner of Influxo
It’s welcome news that Bitcoin has risen in price by close to 9% after Joe Biden has signed an executive order “to establish the first-ever comprehensive federal digital assets strategy for the United States” which appears to show a constructive engagement with cryptocurrencies.
It’s also good news that the White House wants measures to protect American consumers on the one hand, while also directing the Depart of Commerce to create a framework that “drives U.S. competitiveness and leadership in, and leveraging of, digital asset technologies.”
In a similarly balanced approach, which seeks to safeguard against the risks while benefiting from the opportunities crypto provides, the order sees their utility in opening up financial provision, certainly a positive step.
Indeed, the prematurely published statement from Treasury Secretary Janet Yellen aligns with this sentiment, suggesting these measures “could result in substantial benefits for the nation, consumers, and businesses.”
In 2021, many lawmakers failed to take additional steps in the cryptocurrency space, owing to a lack of critical legislative fundamentals and poor opinion polls.
Part of the problem is simply lack of legislative tools to do the job for such innovative assets.
This has meant the SEC has been slow to crack down on rogue ICOs, using legislation designed for a pre-crypto era, while threatening to widen its scope based on its interpretation of how securities law applies to even new assets such as NFTs.
As a result, since Bitcoin launched in 2008 the US government has had to play catch up, for example in last December executives of eight major cryptocurrency firms were called to testify before the House Financial Services Committee, a US congressional committee.
That was the first time crypto companies in the US have been questioned in that way and was well overdue considering the hype and scams around the ICO boom took place back in 2017/18.
Whether the regulatory policy in the field of crypto assets can be implemented in 2022 will also necessitate close collaboration among governments from across the world to develop a practical regulatory policy plan agreed by the majority of them. Indeed, the international aspect is mentioned in Yellen’s abortive reference to promoting international standards and “a level playing field”.
What such a field means in practice is quite another thing, especially if the US gets to call the tune to the detriment of emerging crypto economies from Dubai to Gibraltar.
This point was also recently underlined with the economic sanctions against Russia, which were in part resisted by crypto exchanges.
However, it’s noticeable that US exchanges such as Coinbase have started to fall into line by banning 25,000 Russian accounts.
However, Coinbase is treading a fine line with the Biden administration by confirming it would not ban accounts for ordinary Russians.
The use of the SWIFT payments system to take down the Russian economy, which has pushed the Russian central bank into closer cooperation with the Chinese government’s own financial system has also reminded US lawmakers of the importance of work to create a US digital currency.
The executive order is well timed therefore in tasking the Treasury Department in this respect, along with the Justice Department’s role in deciding on what new law would be required as a result.
What will be interesting too is how this plays out in the battles over privacy rights, in deciding what a digital US currency will look like, in the months and years to come.