The cryptocurrency community is breathing a sigh of relief after President Biden issued his hotly anticipated executive order for digital assets on Wednesday.
For the last year, Defiers have been bracing for bad news as regulators signalled a clampdown on the industry. While the administration’s 5,570-word directive marks a comprehensive push to rein in the unruly sector with a new supervisory regime, it recognized crypto as a technological breakthrough worthy of support, if it can be developed responsibly.
“At a very high level, this is a very positive development,” Kristin Smith, executive director of the Blockchain Association, a Washington-based lobbying organization that represents 80 crypto companies, told The Defiant. “You have the President of the United States saying that digital assets generally are something that the U.S. should maintain leadership in.”
The administration also vowed to support the research and development of a digital form of the U.S. dollar with the “highest urgency.” Thanks to blockchain, central bank digital currencies, or CBDCs, have the potential to make the global financial system far more efficient, and Biden clearly wants to make sure the dollar, the world’s No 1 reserve currency, isn’t left behind.
“A United States CBDC may have the potential to support efficient and low-cost transitions, particularly for cross-border funds transfers and payments,” the order states. With a focus on the mechanics and impact of CBDCs, the Treasury Department will submit a report to the president in six months covering “the future of money payment systems” and how cryptocurrencies are being broadly adopted.
“The political power of the crypto ecosystem is only going to grow over time.”
Investors initially welcomed the news as a bullish signal: BTC hit a six-day high of $42,438 on Wednesday and Ethereum a five-day mark of $2,761. Yet overnight, the market lost its mojo with Bitcoin dropping more than 7% in early morning trading U.K. time, and ETH down 6%, according to CoinGecko.
Needless to say, this is the most sweeping policy move Washington has made to date. The order stresses that digital assets must be developed in a way that protects consumers from the rapaciousness of lawless markets, doesn’t jeopardize financial stability or fuel the spread of money laundering and illicit finance, and ensures that the U.S. remains the global pacesetter in technology. And it settles the question once and for all about regulation — it’s coming in some form, but the administration will gather input from across its departments — from Treasury to Justice to the Budget Office — and, presumably, the industry itself as it moves forward.
The directive is essentially laying down a marker that the White House will not take draconian action to crackdown on crypto as it begins constructing a new oversight regime. But Biden wants to see careful, rules-based development of the new industry. Or as Gary Gensler, the chair of the U.S. Securities and Exchange Commission put it last year, crypto ventures shouldn’t “operate outside the perimeter.”
Policy wonks were also surprised by the administration’s recognition that blockchain technology may be a powerful tool for improving financial inclusion, human rights, and energy.
“The Executive Order included the points we expected like the need to reinforce U.S. leadership in the global financial system and in technological and economic competitiveness through digital assets, but it also spoke to less commonly understood use cases like blockchain’s potential to mitigate climate impacts,” said Connor Spelliscy, an influential voice on crypto policy at the DAO research Collective.
Even Ryan Selkis, the outspoken founder of Messari, the crypto research firm, had nice things to say about the order. “I think this is a big milestone for the industry, and the Biden Administration was thoughtful in their approach and restraint here,” Selkis said in a statement sent to The Defiant.
Devil in the Details
Yet Selkis, who’s been a fierce critic of Gensler and regulatory meddling, remains wary. “The devil’s in the details,” he said. “We’ll see what the major regulators propose in the months ahead, but this is a positive development, and no red flags stood out on the first read.”
The order marks the end of a febrile period in relations between Washington and the burgeoning crypto community. Last summer, Congress passed a $1T infrastructure spending bill with a last-minute provision that levied onerous tax requirements on non-custodial parties like wallets and DeFi protocols.
The surprise move outraged the industry and mobilized a flurry of political activity designed to make sure crypto wouldn’t get blindsided again. States such as Wyoming and Colorado touted their regulation-free approach to registering DAOs and other crypto ventures. At one point Selkis, who has 246,000 Twitter followers, vowed to run for the U.S. Senate to make crypto’s case on Capitol Hill.
The Blockchain Association, which counts DeFi heavyweights Aave, Circle, Solana and Terra among its members, is in the thick of the fray. Smith said the group plans to engage in dialogue with key players in Washington as the administration puts together its report and turns to setting new policy or regulations.
“The political power of the crypto ecosystem is only going to grow over time as the services and products become more developed, as the industry gets more engaged in Washington,” Smith said. “So time is our friend on this. We will be better able to influence policy outcomes six months from now than we are today.”