US President Joe Biden’s cryptocurrency executive order will lead to greater protection of traders, say digital asset developers and proponents.
Biden issued the long-awaited order Wednesday, providing a blueprint as regulators deal with crypto-related risks, consumer protection, national security, and investment rules. The order lays out a national policy for digital assets across six priorities: consumer and investor protection; financial stability; illicit finance; US leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
Biden also instructed regulators to place urgency on the research and development of a potential US central bank digital currency (CBDC) should issuance be deemed in the national interest. The order also directed the US government to assess the technological infrastructure and capacity needs of a potential CBDC in a way that protects American interests.
Impact years away
“We won’t see immediate impact for the consumers as things will happen over time, but there are long term opportunities for investors to get exposure to,” Hyejin Lee, managing partner with Youbi Capital, told Capital.com. “People have been betting heavily on blockchain infrastructure startups, such as Alchemy, Amber, BlockDaemon, etc.”
Youbi is a New York-based venture-capital firm that invests in blockchain technologies.
The order, according to a fact sheet released by the Biden administration, is a response to the “explosive growth” in digital assets. The fact sheet states that digital assets have surpassed a $1trn market cap in recent years, up from $14bn just five years earlier, while surveys suggest that 16% of Americans, or 40 million people, have invested in, traded, or used cryptocurrencies. And, more than 40 countries are exploring or conducting pilot projects on CBDCs.
Lee called the order a “marching signal for the crypto industry."
“Even without a clear timeline, the upcoming regulation will open the door for everyone to enter the field,” she said. “That creates an urgency for the companies to no longer keep their crypto plans (on) the backburner.”
The effect will not be seen two or three years from now, but it will be far-reaching, she added. With regulations in place, mass adoption of the crypto economy and the market cap will be many times larger for investors.
Louis Lehot, a lawyer with Foley & Lardner in San Francisco, who specialises in cryptocurrency, said the order could eventually aid approximately seven million unbanked US households.
“If a digital dollar is introduced in the United States that can be accessible by this population, or that can be transacted without the need for credit cards or by money transmitters domestically or abroad, millions and, indeed, billions of people will benefit,” Lehot told Capital.com.
“It is difficult to overstate the significance of clear and nimble regulation of cryptocurrencies and the adoption of a digital dollar.”
Americans living in sandbox
For years, he said, Americans have been living in a “sandbox” in which the existing statutory and regulatory scheme was not designed for digital currencies. Nor was the sandbox conceived with blockchain and distributed ledger technologies in mind. Meanwhile, Washington has made “general and vague pronouncements” about its crypto intentions without doing the work necessary to modernise existing finance laws and regulations.
Lehot said it is high time that Washington adopts statutes, rules, and regulations to enable the decentralised economy to operate legally. For years, he added, the fintech industry has lacked the clarity needed to know how to comply with a web of legal norms while protecting consumers from fraud or to prevent wrongdoers from using crypto products for nefarious purposes.
Biden’s order merely instructs an inter-agency group to study a range of topics around cryptocurrencies, blockchain, and a digital currency, he added. It is unlikely that any meaningful advances will happen this year because results of the studies will not come back in time for legislation during the current Congress.
Prices rise on news
Bitcoin and other crypto prices rose on the news of Biden’s order, getting a premature spark after US Treasury Secretary Janet Yellen’s statement on the order was inadvertently released a day early. (The Treasury Department subsequently pulled Yellen’s statement from its website and then reposted it Wednesday.)
The move is expected to have an international impact because the Biden administration has pledged to protect global financial stability, and the CBDC development effort will include participation in multi-country CBDC experimentation.
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Lehot said the order could lead to a vast reduction in trillions of dollars annually in consumer and merchant credit card and banking fees.
“Millions of immigrants around the world pay substantially more fees to money transmitters to remit fiat currency to relatives in other countries,” he said.
Lehot noted that thousands of Americans succeeded in donating funds directly to Ukrainians impacted by Russia’s invasion of their country by “fictionally” renting apartments via Airbnb and skirting the involvement of government and non-governmental organisations.
“But a digital dollar will not be based on a decentralised blockchain or distributed ledger technology and could empower the federal government to significantly increase its power in the daily lives of citizens and intrude on individual privacy,” he said.
Powell supports idea of CBDC
US Federal Reserve chief Jerome Powell has supported the idea of creating a USCBDC. But Lehot said a government-backed digital coin is “years away” because the inter-agency group study results will not be known for at least six months and then more legal and regulatory work will be required. Biden’s order increases the likelihood of a US CBDC, but it would likely be implemented very slowly to minimise financial market disruption, the lawyer added.
The effort to develop a US CBDC comes after China created one that is now being introduced. Lee expects the US CBDC to follow the Chinese example and serve as “more of an inter-bank settlement system” that uses blockchain technology “rather than a cryptocurrency” due to privacy and auditability concerns.
“We should not be too excited for the digital USD,” he said.
Hany Rashwan, CEO of crypto exchange-traded products company 21Shares, which is headquartered in Zug, Switzerland and New York, said he’s optimistic about what doors the order will open for his company in the US.
“(Wednesday’s) executive order is a significant step for US investors looking to capitalise on the most lucrative asset class of the last decade, and we believe for the next decade to come,” he said.
Rashwan also believes the move will help the US establish itself as a global crypto leader. But it remains to be seen exactly how many of Biden’s wishes will become reality.
“Achieving all of the myriad objectives laid out in the executive order would be a triple bank shot, for sure,” said Lehot, referring to a low-percentage billiards play. “But it’s high time that we started trying.”