An avalanche of investigations and reports is the first step towards a coherent cryptocurrency policy, while the action is left for months or years to come.
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, expected for several months, provided the industry ample time to build up uneasiness. However, once they made the executive order public, there was 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. Cryptocurrency advocacy group Coin Center CEO 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 your hair on, but to recognize them as an innovation that the United States will want to encourage.”
Among lawmakers who supported him, 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 national and global economies, noting that non-state digital assets have increased 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 US government’s approach to digital assets,” it continues. The EO sets policy goals related to consumer protection, financial stability, illicit finance, and national security, America’s leadership, services for the under-banked or unbanked, and responsible development.
Getting their Act Together
The EO does not specify any regulatory action. Rather, it outlines an interagency process that will involve 16 senior officials, including several cabinet members, with the possibility of independent regulatory agencies also taking part. The first duty will be to produce an elaborate series of reports, with a variety of supplements and annexes, 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 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 cross so many issues that there is no single agency that can address them.” The reports and recommendations will build on each other, Barrage said and will require quality control oversight. “You don’t want 20 different opinions that don’t agree,” he said.
Once reporting is complete, implementation of the administration’s policy goals will remain a goal. The EO “has very well-balanced, very intentional language,” Oleg Elkhunovich, a partner at Susman Godfrey LLP, told Cointelegraph, and is “well thought out and compelling.” However, the final impact of the EO is “an unknown factor”.
“Most of the industry is asking for rules,” Elkhunovich said because the absence of actively enforced regulation makes innovation risky. EO also marks the end of the perception of cryptocurrencies 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.
Green Energy and Digital Dollars
One of the EO-mandated reports will address the environmental issues associated with Blockchain technology. In addition, it will focus on 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.
Long Process Ahead
The schedule for the work is after the mid-term elections, so there is no clue about in which legislative environment it will appear. 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 is 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 countries like China develop and launch CBDCs.”
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.”
By Audy Castaneda
