United States President Joe Biden signed the Executive Order on Ensuring Responsible Development of Digital Assets on March 9. The order had been expected for several months, giving some in the industry plenty of time to build up trepidation. Once the executive order, or EO, was released, however, it was received with a chorus of approval.
“I expected certain things and the positive tone wasn’t necessarily one of them,” said Ari Redborn, chief of legal and government affairs at TRM Labs. said from the order. Crypto Advocacy Group Coin Center Executive Director Jerry Brito tweeted that the EO is “further confirmation that when serious officials soberly view crypto, the response is not to set their hair on fire, but instead to recognize it as a[n] innovation that the US wants to promote.”
Among the 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 EO acknowledges the place of digital assets in the national and global economies, noting that non-state digital assets rose in 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 United States government’s approach to digital assets,” it continues. The EO sets policy objectives related to consumer protection, financial stability, illicit financing and national security, leadership in the US, services for understaffed and responsible development.
Getting their affairs in order
The EO does not specify any regulatory actions. Rather, it outlines an inter-agency process that will involve 16 senior officials, including several cabinet members, which may also involve independent regulators. Their first job will be to produce a comprehensive set of reports, with a variety of additions and appendices, at intervals ranging from 90 days to well over a year from 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 process between the agencies.
The complexity of the EO as project management should not be underestimated. Former FDIC associate director Alexandra Barrage, now a partner at Davis Wright Tremaine LLP, told Coin-Crypto that the interagency process “is a testament to the fact that digital assets crisscross so many problems, there’s no single agency that can tackle it.” The reports and recommendations will build on each other, Barrage said, and they will require quality control oversight. “You don’t want twenty different opinions that don’t fit together,” she said.
After completion of the report, the implementation of the board’s policy objectives remains a goal. The EO “has very balanced, very deliberate” language, Oleg Elkhunovich, partner at Susman Godfrey LLP, told Coin-Crypto, and it’s “thought out and persuasive.” Nevertheless, the ultimate impact of the EO is “everyone suspects”.
“Most of the industry is asking for the rules,” Elkhunovich said, because the absence of actively enforced regulations makes innovation risky. The EO 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.”
Joseph Robinette Biden Jr. the 46th President of the United States. Source: www.facebook.com/WhiteHouse.
Consistent regulation with no gaps “is certainly the ideal goal,” Peter Hardy, co-leader of the anti-money laundering team at Ballard Spahr LLP, told Coin-Crypto by email, but that goal “will be elusive in practice — especially given the constant and rapid technological change, which means that regulations have to constantly sprint to keep up.”
“Just knowing with any degree of certainty whether someone is regulated by the SEC, or the CFTC, or FinCEN, or any combination of those — and if so, how exactly — would be extremely valuable,” Hardy added.
Before crypto companies figure out which bodies will regulate them, there is a lot to be solved behind the scenes. The EO names seven regulatory bodies, and some of them are already competing for power.
For example, the Office of the Comptroller of the Currency (OCC) and the Consumer Financial Protection Bureau (CFPB) disagreed last year over chartering fintech companies, and the director of the Commodity Futures Trading Commission (CFTC) urged more enforcement power over crypto in the Senate last month. The Securities and Exchange Commission (SEC) has been accused of going too far in its enforcement efforts. That agency is hardly mentioned in the EO and was not given a prominent role.
Green energy and digital dollars
One of the reports commissioned by the EO looks at the environmental issues associated with blockchain technology, and how it could hinder or advance efforts to tackle climate change. This report will include the administrator of the Environmental Protection Agency (EPA). The EPA has significantly increased its regulatory activity under the Biden administration and its efforts have already begun to… influence the crypto mining industry and its energy resources.
John Belizaire, CEO of Soluna Computers, in a statement to Coin-Crypto identified the crypto industry’s environmental footprint, use of fossil fuels, equipment recycling and other forms of waste disposal as issues likely to preoccupy the agency in the future. “The crypto industry is already on track to improve and mature its operations,” Belizaire wrote. There are several ways the industry could work synergistically with regulators to strengthen the energy grid and “accelerate the green transition,” he said, concluding that improving regulation “would be a good thing for the industry.”
Finally, the EO states that the administration attaches “the highest urgency to research and development efforts into the potential design and implementation options” of a US central bank digital currency, or CBDC. This is remarkable, given the Federal Reserve’s cautious stance on CBDCs and their rapid development around the world.
The EO instructs the Minister of Finance to prepare a report on a CBDC together with other relevant officials. The Federal Reserve System’s Board of Governors is encouraged to continue its investigation into a CBDC, and the Attorney General must face an effort “to review all necessary legislative changes to issue a U.S. CBDC within 180 days.” and soon to develop a legislative proposal afterwards.”
Long process ahead
The work is to take place after the midterm elections, so the legislative environment in which it will appear cannot be foreseen. There is little doubt that the legislative proposal will be only the first step in a long process.
“This definitely shows that the US is (finally) thinking strategically about the impact of crypto on financial innovation and competitiveness,” David Carlisle, director of policy and regulation at blockchain security firm Elliptic, wrote on LinkedIn. “While it’s still not a foregone conclusion, a digital dollar will happen” […] this indicates that the US is serious about the risk that it could lose its competitive advantage as crypto innovation continues and as countries like China develop and launch CBDCs.
Cryptocurrencies and the shares of neighboring companies saw a brief rise after the release of the EO. It is unlikely that the EO will have any impact on the market in the short term. Gai Sher, senior counsel at Greenspoon Marder LLP, noted in a statement to Coin-Crypto that “it requires no action or inaction from market players.” She continues: “We are waiting for enforceable regulations. […] Meanwhile, the international community is making progress.”
The interval before regulation starts is not necessarily a waste of time for the industry. Coordinators Sullivan and Deese promise they are “committed to working with allies, partners and the wider digital asset community.”