White House Outlines Plan To Regulate Cryptocurrencies

Topline

The White House Friday unveiled a new framework on regulating digital assets including cryptocurrencies, which includes increased oversight and exploring the creation of a potential digital U.S. dollar, marking the Biden administration’s most significant effort yet to establish a policy to regulate crypto assets.

The Biden White House unveiled its framework on regulating cryptocurrencies and other digital assets … [+] on Friday.

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Key Facts

Acknowledging the risks faced by crypto consumers, the framework urges the Security and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to “aggressively pursue” probes into unlawful practices.

The framework also asks the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) to redouble efforts to deal with consumer complaints against deceptive practices by crypto companies.

In order to prevent the use of crypto for money laundering and financing terror, President Joe Biden may propose a potential expansion of the Bank Secrecy Act (BSA) to include cryptocurrencies and non fungible tokens (NFTs).

The Treasury department is conducting an “illicit finance risk assessment” on decentralized finance (DeFi) platforms and a separate one on NFTs—those are expected to be completed by February 2023 and July 2023, respectively.

One of the framework’s most significant proposals is assessing the creation of a U.S. Central Bank Digital Currency or a digital U.S. Dollar—an area in which China has made significant progress—that may enable faster and simpler cross-border transactions.

In an effort to make the digital economy more equitable, the framework calls for the expanded adoption of “instant payment services” and the establishing regulatory policies for “non bank” payment platforms.

Crucial Quote

In a statement issued by the White House, National Economic Council Director Brian Deese and National Security Advisor Jake Sullivan said the framework intends to position the U.S. to play a “leading role in the innovation and governance of the digital assets ecosystem at home and abroad and in a way that protects consumers, is consistent with our democratic values, and advances U.S. global competitiveness.” They added that the White House is seeking “continued engagement with allies and partners on these issues, which will reinforce U.S. technological and financial leadership globally.”

What To Watch For

The Treasury will work closely with financial institutions to “identify and mitigate cyber vulnerabilities” while other federal agencies like the Environmental Protection Agency and the Department of Energy will be tasked with examining the environmental impact of digital assets like cryptocurrencies.

Key Background

Friday’s announcement comes after Biden issued an executive order in March asking multiple federal agencies to examine the risks and opportunities of digital assets like cryptocurrencies and prepare reports based on their findings. After explosive growth in the last two years, 2022 has been a volatile year for cryptocurrencies, with the values of popular tokens plummeting to less than a third of their all-time highs. The collapse of the algorithmic stable coin TerraUSD in May caused a marketwide crypto crash. The value of Bitcoin currently stands at $19,864, down more than 1.5% in the past 24 hours and more than 70% from an all-time high of $68,990 last year.

Tangent

Ethereum, one of the world’s largest blockchain that powers Ether (ETH)—the second largest cryptocurrency in the world—completed an update to its system on Thursday. The update known as the “Merge” switches the blockchain and the token to a more environmentally friendly mode of operation called “proof-of-stake” where token holders can stake a portion of their ETH to validate transactions in exchange for a reward. Ethereum previously relied on a “proof-of-work” model where crypto miners could use their computers to perform complex calculations and validate transactions and earn ETH tokens. Ethereum argues, proof-of-stake will be far more environmentally friendly compared to the energy-hogging proof-of-work method which faces opposition from environment groups and lawmakers. However, hours after the “Merge” SEC Chairman Gary Gensler warned that staking ETH for returns could bring the transactions under U.S. security laws.

White House Outlines Plan To Regulate Cryptocurrencies—Here’s What You Should Know