President Joe Biden on Wednesday signed a long-awaited executive order on cryptocurrencies, striking a careful balance between highlighting the risks of digital assets and touting their potential benefits to financial inclusion and global competitiveness.
The order noted that the U.S. has an interest in "responsible financial innovation" and "expanding access to safe and affordable financial services," while also stressing the need for "strong steps to reduce the risks that digital assets could pose to consumers, investors, and business protections" as well as ensuring economic stability and combating illicit finance.
The crypto community has waited eagerly for further clarity from the Biden administration, as agencies such as the SEC have begun regulating the industry in earnest, including high-profile enforcement actions such as a $50 million fine on decentralized finance firm BlockFi.
The order, which primarily directs federal agencies to produce a series of reports on everything from the pros and cons of a central bank digital currency to the impact of crypto mining on the environment, doesn't offer any specific policy positions, but it does signal that the entire federal government is now engaged in figuring out how best to address crypto.
Major players in the crypto space are taking this as a sign that the federal government sees a future for cryptocurrencies and is ready to work with the industry going forward.
"The Biden administration’s executive order on digital assets represents a watershed moment for crypto and Web3, akin to when the government in the '90s realized the commercial power of the internet," said Jeremy Allaire, CEO of Circle, issuer of the second-largest stablecoin.
Greater recognition will likely come with more regulation, but some in the industry are eager for a clear set of rules, which they believe could help drive wider adoption.
"The order’s direction to create more robust cooperation within the government is the progress we’ve been working towards, and we welcome it," said Denelle Dixon, CEO of Stellar Development Foundation, a nonprofit blockchain company. "We hope it leads to a future regulatory state where existing agencies have more clarity on how the existing regulatory framework can and should be applied to the blockchain industry and the identification of any gaps."
Despite a lack of specific policy positions, the order does stress that "while many activities involving digital assets are within the scope of existing domestic laws and regulations," the rapid adoption of digital assets and "inconsistent controls" require new rules and regulations.
These comments get at one of the biggest debates around the future of crypto regulations: does crypto fall under existing laws or does it require a whole new framework?
Again, the order doesn't answer this question, and in many ways it will fall to lawmakers to come up with new legislation around cryptocurrencies. In the meantime, the order lays out a set of objectives that agencies should consider moving forward.
Objectives addressing crypto's risks include protecting U.S. consumers, mitigating systemic risk, stopping illicit finance, and working with international partners to coordinate regulations across the globe.
As for objectives that seek to promote crypto, the order seeks to promote U.S. leadership in finance and technology innovation, promote equitable access to new financial services and technologies, and explore the possibility of a central bank digital currency.
Critics have pointed out that the Biden administration seems to take it as a given that cryptocurrencies have a public benefit and stressed the importance of looking critically at crypto before giving the industry further legitimacy.
"The EO conveys an uncritical acceptance of the idea that technology can solve deep-seated structural financial inclusion problems," said Hilary Allen, a professor of law at American University Washington College of Law, who has spoken before Congress on the risks of cryptocurrencies. "Given the multi-faceted risks identified in the EO, critical interrogation of crypto's actual utility should be the first step of any whole-of-government approach."
In a statement on the order, National Economic Council Director Brian Deese and National Security Advisor Jake Sullivan noted that crypto has yet to provide widespread benefits.
"We are clear-eyed that 'financial innovation' of the past has too often not benefited working families, while exacerbating inequality and increasing systemic financial risk," they wrote. "This history underscores the need to build robust consumer and economic protections into digital asset development."