Crypto’s Coming Shock

The crypto world heaved a sigh of relief regarding President Biden’s new executive order on the industry. Those positive feelings are misplaced.

For months the digital-asset industry has been on tenterhooks as the Biden Administration prepared an executive order on how the government would deal with the explosive growth of crypto assets. In five years their total market cap has grown 300-fold to more than $3 trillion.

Crypto enthusiasts feared Washington would take a regulatory sledgehammer to the industry. Instead, the order seems to provide sensible frameworks for dealing with this phenomenon. Many industry participants recognized that regulations of some sort were coming and were thus delighted that Uncle Sam would be taking a reasonable, responsible approach.

Alas, despite soothing words about the desire to “reinforce United States leadership in the global financial system and in technological and economic competitiveness,” the order’s implicit assumption is that this won’t happen unless the whole federal government is involved in overseeing things. The impression given, in fact, is that the new crypto world is fraught with serious risks, rather than brimming with opportunities.

Human nature being what it is, government regulators will cast a jaundiced eye on the unfamiliar. Just look at the governmental agencies Biden’s decree says will play a role, one way or another: the SEC, the Federal Reserve, the FTC, the EPA, the White House Domestic Policy Council, the Council of Economic Advisers, the Commerce Department, the Energy Department, the Treasury Department, the Labor Department, the office of the Attorney General, the State Department, the Defense Department, the OMB and on and on.

Countless government committees and study groups are toxic to exciting breakthroughs. Would the automobile and the internet have developed the way they did if Washington had gotten involved with them to the degree it wants to with crypto?

Creativity is messy and unpredictable. Failure is common. Blunders abound. Development and progress are never risk-free. Fraudsters and charlatans are always around, whether in existing areas of endeavor or new ones.

One idea in the executive order that should get the kibosh is that the Federal Reserve and the Treasury Department should create a Central Bank Digital Currency. You could kiss any vestige of financial privacy goodbye with that one, as government could easily track everything you spend.

Economic regulators would try to manage the economy by giving orders as to the desired level of spending and investing they wanted and would make sure you’re doing what they want you to do. To that end, they could put expiration dates on currencies.

The executive order also gives the game away regarding the mortal threat the ad- ministration sees in stablecoins, which will evolve into alternatives to government currencies: “Sovereign money is at the core of a well-functioning financial system, macroeconomic stabilization policies and economic growth.”

The order is a wolf in sheep’s clothing.

Big political and regulatory battles are coming.