Does the White House’s new unified approach to cryptocurrency finally provide regulatory clarity to the industry?
On March 9, 2022, President of the United States Joseph Biden signed the Executive Order on Ensuring Responsible Development of Digital Assets. The document outlines the White House’s first-ever “whole-of-government strategy” toward the industry. However, beyond that, it focuses on issues with which anyone who has spent time in crypto will be deeply familiar.
The order’s timing, its authors’ political leanings and the general aversion to regulation that permeates some corners of the cryptocurrency industry helped to spread fear and uncertainty leading into its signing. Would the White House approach crypto with a heavy regulatory hand? And would the executive order deal a death blow to the technology’s innovative potential within the United States’ borders?
As it turned out, fears of a harsh, immediate crackdown were overblown. Far from a worst-case blanket ban, the executive order takes a measured approach, calling for research into both the opportunities and risks presented by cryptocurrency. Its overriding message is that the U.S. government takes cryptocurrency seriously but does not consider it only as potentially harmful to the nation’s interests.
Biden’s executive order, its timing and impact on the crypto industry is this OKX Insights in-depth article’s focus. We first break down the order’s contents before exploring the geopolitical context in which it was signed and the industry’s reaction to it. Finally, we assess whether the outpouring of relief after the order was revealed is warranted, ultimately asking if it is bullish or bearish for crypto.
TL;DR
- The United States’ first “whole-of-government” approach to crypto addresses familiar issues — but acknowledges both the technology’s opportunities and risks.
- The order’s measured approach suggests that widespread fears of a complete crypto crackdown were misplaced.
- The White House is taking a research-first approach to regulating the industry and calls for government agencies to coordinate and report on the key policy objectives outlined in the order.
- While mainstream media portrayed the order as a knee-jerk reaction to Russian sanctions, it has been in the works for months and involved consultation with crypto industry representatives.
- There is certainly a lot to be optimistic about in the order for those fearing a complete crackdown, but how lawmakers eventually approach the industry remains to be seen.
Breakdown of the crypto executive order
Policy objectives stated in the executive order focus on protecting consumers, investors and businesses; preserving U.S. and global financial stability; protecting against money laundering, terrorist financing, sanctions evasion and cybercrime — collectively referred to as “illicit finance;” advancing U.S. leadership in global finance; promoting financial access to those underserved by existing services; and supporting responsible technological development.
As mentioned, there are few real bombshells among the objectives. The six areas laid out have been favorite talking points of financial regulators the world over for years now. Few observers would have been surprised that crypto’s environmental impact, concerns around terrorist financing and money laundering, or preserving U.S. and global financial stability feature prominently.
Similarly, the focus on promoting financial access, which the industry has long championed as one of cryptocurrency’s main benefits, is not new. While the executive order formally acknowledges the often-repeated idea of “banking the unbanked” via crypto, the G7 Finance Ministers and Central Bank Governors — of which the U.S. is a member — previously addressed financial inclusion facilitated by “digital payments” in October 2020. The U.S. Financial Enforcement Crimes Network elaborated on the G7 statement later the same year to specifically reference “blockchain-based CVC networks” — CVC standing for convertible virtual currencies.
While much of the order raises well-established opportunities and risks, sections relating to ensuring that the U.S. remains competitive on both the financial and technological fronts mark a shift from expectations. Although government agencies such as the Securities and Exchange Commission have (many times) previously focused on investor protection, for example, they have not acknowledged explicitly that the U.S. risks falling behind other nations if its regulatory approach to crypto discourages domestic innovation.
Similarly new is the focus on U.S. progress toward a central bank digital currency. Hardly a fresh concept — consideration of a purely Federal Reserve-issued digital dollar dates back as early as 2017 — the order does make research and development a top priority for the first time. Citing a CBDC as a means of “showcasing United States leadership” and potentially promoting financial inclusion, it states:
“My Administration places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.”
The main change that the executive order details is the introduction of a coordinated “whole-of-government” approach to digital assets for the first time. It instructs relevant government agencies to come together, explicitly listing 17 government departments to be part of an “interagency” approach. The coordination is to include the Secretary of State, the Secretary of the Treasury, the Secretary of Defense, the Director of the Office of Management and Budget, the Director of the Office of Science and Technology Policy, and others. It adds that different agencies may be included when relevant, naming the SEC and Commodity Futures Trading Commission, for example.
Much ado about nothing?
Despite much of the industry clamoring for regulatory clarity for many years now, the general sentiment leading into the executive order’s signing was remarkably pessimistic. Robert Kiyosaki, a U.S. financial educator and author, went as far as to tweet “bye-bye Bitcoin” on March 8, 2022, adding that the order would regulate crypto ahead of a U.S. government-mandated digital asset seizure.
Similarly, fear was palpable in the responses to a tweet about the order by YouTuber Carl Runefelt, better known by the handle The Moon Carl. Several followers suggested that the contents of the executive order would tank crypto prices, with one stating “BTC to 10k in 5 minutes.”
BTC price action leading into the order’s signing captured the uncertainty, too. In the seven days immediately preceding it, the leading crypto slumped from just over 45,000 USDT to as low as 37,140 USDT on March 8 on OKX. A leaked statement from the U.S. Secretary of the Treasury office regarding the order allayed fears, prompting an immediate rally to above 42,600 USDT. The quickly removed post read:
“Treasury will work to promote a fairer, more inclusive, and more efficient financial system, while building on our ongoing work to counter illicit finance, and prevent risks to financial stability and national security.”
Research before regulation
Fears of an immediate and harsh crackdown on crypto appear to be misplaced — for now, at least. At no point does the order or accompanying fact sheet advocate a complete ban on crypto or related technologies that are known to be among the White House’s most pressing concerns. For example, there is no mention of the perceived threat of noncustodial wallets, which have previously come under fire from the Financial Crimes Enforcement Network. In an effort to “address the illicit finance threat,” FinCEN advocated stringent reporting requirements for crypto companies, receiving immense backlash from the industry in late 2020.
While the executive order outlines largely familiar objectives, it is sparse in terms of actual policy. Far from an aggressive, reactionary stance, it instructs the government agencies mentioned to prepare reports on highlighted issues. The document requests so much preliminary research that Josh Cincinnati, a board member at the Mina Foundation and former executive director of the Zcash Foundation, described it as:
“The crypto executive order that launched a thousand reports.”
Although the order largely calls for government agency reporting, which admittedly could still result in harmful regulation, Jerry Brito, the executive director at Washington-based think tank Coin Center, optimistically called it “a call for further study and deliberate planning, not a reactive rush to legislate or regulate,” adding:
“If there’s anyone who should not abide by the motto ‘move fast and break things,’ it’s Congress.”
The order’s cautious approach and call for research ahead of regulation provide a welcome opportunity for the U.S. government to hear and take seriously industry opinion. Indeed, a press briefing accompanying the executive order mentions that industry representatives have already been deeply involved in the ongoing regulatory process. A senior administration official reportedly stated:
“We’ve done a number of what we call ‘Crypto Sundays’ where we brought in innovators on the technology side, individuals on the financial side to really understand the different elements of cryptocurrencies.”
This liaison is something that many in the industry believe will continue during the reporting periods outlined by the order. In a statement, Perianne Boring, CEO of the blockchain trade association Digital Chamber of Commerce, wrote:
“We look forward to working closely with Secretary Yellen and the interagency partners focused on the Executive Order’s execution and share in their vision to promote a fairer, more inclusive, and more efficient financial system, while working to counter illicit finance and prevent risks to financial stability and national security.”
There is no shortage of voices in and around Washington to aid the U.S. government in its reporting and to attempt to steer it away from potentially harmful regulation. A March 8 report by nonprofit consumer advocacy organization Public Citizen claims that the number of cryptocurrency lobbyists in the U.S. capital tripled between 2018 and 2021, while their spending increased fourfold.
Why act now?
The executive order’s timing is somewhat curious, and no doubt contributed to the fear of a harsh, immediate crackdown on the industry. Biden signed the order just two weeks after the U.S. government and its allies announced unprecedented economic sanctions against Russia following its military offensive in Ukraine.
The conflict thrust cryptocurrency into the spotlight as Ukraine’s government appealed for donations via crypto addresses posted to official social media accounts, and corners of the U.S. government speculated over Russia’s ability to evade international sanctions using cryptocurrency.
While an economy the size of Russia’s attempting to evade sanctions in any meaningful way using crypto is infeasible, that didn’t stop the mainstream media from jumping on the angle. After all, controversy generates clicks, and clicks generate revenue in the age of digital media. Just days after the original sanctions were announced, the New York Times ran the headline “Russia Could Use Cryptocurrency to Blunt the Force of U.S. Sanctions.”
The article itself makes vague attestations about Russia attempting to evade sanctions using public blockchain-based currencies — an avenue smaller economies like Iran and North Korea have previously explored — but ultimately posits that the CBDC the nation is working on would likely prove most useful for such ends.
Several other publications published similar reports in the days following, with some making even bolder connections between sanctions and the upcoming order. For example, Euronews published a headline that couldn’t have spelled out the perceived association more clearly: “Joe Biden to sign an executive order on crypto to stop Russia evading Ukraine war sanctions.”
Yet, the actual order only makes a very occasional reference to economic sanctions and does not elaborate in the way one would expect were they the impetus for the order. In fact, the executive order has been in the works for months now, with Bloomberg first reporting on its drafting on Oct. 8, 2021. The story states that the White House’s approach would be “government-wide” and would “clarify the responsibilities of various agencies and task them with examining relevant topics and reporting back on their findings.”
While it’s entirely possible that the order was always scheduled for March, it’s also possible that Russian sanctions sped up the process. With cryptocurrency still a divisive issue thanks to ongoing efforts to discredit the technology on environmental grounds — particularly among U.S. Democrats — the order may have been pushed forward, somewhat, to appease the current administration’s supporters, which is generally also fiercely supportive of economic sanctions against Russia. While the measure does little beyond establishing reporting obligations, and the feasibility of sanctions evasion is questionable, it at least appears that the government is acting to limit Russia’s options further.
Is the executive order good or bad for crypto?
At this early stage after the executive order’s signing, it’s challenging to determine precisely the long-term outcome of the U.S. government finally turning its attention to crypto. On the one hand, the very fact that the administration is cautious about fostering crypto’s potential and talks about becoming a world leader is incredibly encouraging.
The order also does not make the kind of rash regulatory moves many feared. Instead, it effectively acknowledges that policymakers are still not informed enough to make policy decisions in a way that does not risk stifling innovation. By favoring a research-first strategy, representatives of the cryptocurrency industry can hopefully work with policymakers to create the kind of regulation under which crypto can flourish.
Like the Digital Chamber of Commerce, the Blockchain Association published a similarly optimistic statement about the order, which reads:
“The White House’s directive to coordinate oversight is further proof that the crypto ecosystem is now a vital and inseparable part of the national economy. By […] having an open and productive dialogue with the industry, the Biden Administration has the opportunity to work with the industry and ensure America remains the global leader for technological innovation for years to come.”
On the other hand, the many reports the order requests to inform future policy decisions could ultimately be damning for crypto. Some in Washington remain deeply hostile to digital assets, as evidenced by the bill Democratic Senator Elizabeth Warren introduced during a March 17 Senate Banking Committee hearing. The “Digital Asset Sanctions Compliance Enhancement Act” would effectively enable the U.S. government to sanction foreign cryptocurrency companies that do business with those facing economic sanctions. While crypto advocacy groups appear to have the opportunity to continue liaising with the government, the White House is under no obligation to put their recommendations into practice.
For now, at least, the U.S. cryptocurrency industry can breathe a sigh of relief. The timeline for the reports the order requests is between 90 and 210 days, meaning the current status quo will likely remain until mid-June, at the earliest. After that, it will be all eyes on the White House again to see if it can successfully balance its goal of protecting investors, consumers and its national interests while avoiding neutering crypto’s innovative potential within its borders entirely.
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Source: https://www.okx.com/academy/en/cryptocurrency-executive-order-expectations-and-united-states-government-strategy/