The President of the United States, Joe Biden, signed on March 9 the Executive Order (EO) to Ensure the Responsible Development of Digital Assets. The order had been expected for several months, giving some in the industry ample time to build up uneasiness. However, once the executive order was made public, it was met with a chorus of approval.
“I was expecting certain things and the positive tone wasn’t necessarily one of them,” TRM Labs’ head of legal and government affairs Ari Redborn said of the order. The CEO of cryptocurrency advocacy group Coin Center, Jerry Brito, tweeted that the EO is “further assertion that when serious officials take a sober look at cryptocurrencies, the reaction is not to turn their hair on, but to recognize them as an innovation that the United States will want to encourage.”
Among supporting lawmakers, Republican “crypto-senator” Cynthia Loomis of Wyoming said in a statement: “It’s great to see the Biden administration’s growing interest in digital assets.”
The OE acknowledges the place of digital assets in national and global economies, noting that non-state digital assets have increased their market capitalization from $14 billion in November 2016 to $3 trillion five years later. Rapid development and inconsistent controls “require an evolution and alignment of the US government’s approach to digital assets,” she continues. The EO sets policy goals related to consumer protection, financial stability, illicit finance and national security, America’s leadership, services for the underbanked, and responsible development.
To put the batteries
The OE does not specify any regulatory action. Instead, it outlines an inter-agency process involving 16 senior officials, including several Cabinet members, and could also involve independent regulators. Their first tasks will be to produce an elaborate series of reports, with various supplements and annexes, to be submitted at intervals ranging from 90 days to well over a year after the publication of the EO. Assistant to the President for National Security Affairs Jake Sullivan and Assistant to the President for Economic Policy Brian Deese will coordinate the interagency process.
The complexity of EO as project management should not be underestimated. Former FDIC Associate Director Alexandra Barrage, now a partner at Davis Wright Tremaine LLP, told Cointelegraph that the interagency process is “a testament to the fact that digital assets go through so many issues, there is no one agency that can address them.”. The reports and recommendations will build on one another, Barrage said, and will require quality control oversight. “We don’t want 20 different opinions that don’t fit together,” she said.
After the reports are complete, implementation of the administration’s policy goals will remain a goal. The EO “has very balanced and very intentional language,” Oleg Elkhunovich, a partner at Susman Godfrey LLP, told Cointelegraph, and it is “thought out and compelling.” However, the final impact of the OE is “an unknown factor”.
“Most of the industry is asking for the standards,” Elkhunovich said, because the absence of actively enforced regulation makes innovation risky. The OE also marks the end of the perception of cryptocurrency as the Wild West. “It’s a $3 trillion market,” Elkhunovich said. “You can’t have that.”
Consistent, loophole-free regulation “is certainly the ideal goal,” Peter Hardy, co-leader of Ballard Spahr LLP’s anti-money laundering team, told Cointelegraph by email, but that goal “will be elusive in practice, especially considering the constant and rapid changes in technology, which means regulations will have to be constantly running around just trying to keep up.”
“Just knowing with any certainty whether you’re regulated by the SEC, or the CFTC, or FinCEN, or some combination thereof – and if so, exactly how – would be extremely valuable,” Hardy added.
Before crypto companies know which agencies will regulate them, there is a lot to sort out behind the scenes. The EO mentions seven regulatory agencies by name, some of which have already vied for power.
For example, the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) disagreed last year on the authorization of financial technology companies, and the director of the Commodity Futures Trading Commission (CFTC ) pushed last month in the Senate for increased enforcement authority over cryptocurrencies. The Securities and Exchange Commission (SEC) has been accused of overreaching in its enforcement efforts. This agency is barely mentioned in the OE and was not given a prominent role.
Green energy and digital dollars
One of the EO-mandated reports will address the environmental issues associated with blockchain technology, and how it can “impede or advance efforts to address climate change.” The administrator of the Environmental Protection Agency (EPA), among other officials, will participate in this report. The EPA has significantly increased its regulatory activities under the Biden administration, and its efforts have already begun to affect the cryptocurrency mining industry and its energy sources.
Soluna Computers CEO John Belizaire, in a statement to Cointelegraph, identified the carbon footprint of the cryptocurrency industry, the use of fossil fuels, equipment recycling, and other forms of waste management among the issues likely to be of concern. to the agency in the future. “The cryptocurrency industry is already well on its way to improving and maturing its operations” in those respects, Belizaire wrote. There are several ways the industry could work with regulators synergistically to strengthen the power grid and “accelerate the green transition,” he said, concluding that improved regulation “would be a great thing for the industry.”
Lastly, the EO states that the administration “attaches the utmost urgency to research and development efforts into potential design and deployment options” for a US central bank digital currency, or CBDC. This is noteworthy, given the Federal Reserve’s cautious stance on CBDCs and their rapid development around the world.
The EO directs the Secretary of the Treasury, together with other appropriate officials, to prepare a report on a CBDC. The Federal Reserve System’s board of governors is encouraged to continue its investigation into a CBDC, and the attorney general should lead an effort “to assess any legislative changes necessary to issue a U.S. CBDC within 180 days and develop a legislative proposal soon after”.
Long process ahead
The work is scheduled for after the mid-term elections, so the legislative environment in which it will appear cannot be foreseen. There is no doubt that the legislative proposal will be only the first step in a long process.
“This definitely shows that the United States is (finally) thinking strategically about the impact of cryptocurrencies on financial innovation and competitiveness,” David Carlisle, director of policy and regulatory affairs at blockchain security firm Elliptic, wrote on LinkedIn. “While it’s not yet a foregone conclusion that a digital dollar will happen […] this signals that the United States is taking seriously the risk that it could lose its competitive edge as crypto innovation continues and as countries like China develop and launch CBDCs.”
Cryptocurrencies and shares of adjacent companies saw a brief rally following the OE release. The OE is unlikely to have any influence on the market in the short term. Gai Sher, lead attorney at Greenspoon Marder LLP, noted in a statement to Cointelegraph, as it “does not require any action or inaction from market players.” She goes on to say: “We are waiting for an actionable regulation. […] Meanwhile, the international community is moving forward.”
The interval before regulation begins will not necessarily be lost time for the industry. Coordinators Sullivan and Deese promise that they are “committed to working with allies, partners, and the wider digital asset community.”
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