Blockchain & Cryptocurrency , Cryptocurrency Fraud , Fraud Management & Cybercrime
President Joe Biden Signs Executive Order on CryptocurrencyMarks First Whole-of-Government Strategy for Reining in Digital Assets
U.S. President Joe Biden on Wednesday signed an executive order on cryptocurrency that tackles consumer protection, financial stability, national security and climate risks. The administration calls it the first whole-of-government strategy to rein in cryptocurrencies, which have long been chided for lax cybersecurity and anti-fraud controls.
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In a fact sheet published on Wednesday, the Biden administration says the new directive addresses risks and harnesses potential benefits of digital assets and their underlying technology. The order establishes a national policy across six different areas: consumer and investor protection, financial stability, illicit finance, U.S. leadership in the global financial system, financial inclusion and responsible innovation.
White House officials underscore the prevalence of today's digital assets market, saying it has experienced "explosive growth" - passing the $3 trillion market cap in November 2021. Approximately 16% of all adult Americans - or 40 million people - invest in, trade or use cryptocurrencies, they say.
The order directs the interagency to develop related policy recommendations, tasks the Federal Reserve with continuing its research into the U.S. digital dollar and requires the Treasury Department to produce a report on the future of money and payment systems, among other measures.
It follows previous enforcement actions - including exchange sanctions - from the Treasury Department, recent analysis on stablecoins from the President's Working Group on Financial Markets, record asset seizures conducted by the Department of Justice and more.
Overall, the fact sheet says: "The U.S. must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system, and the climate."
Executive Order: The Specifics
The order directs the Department of the Treasury and partners to address the implications of the growing digital asset sector and changes in financial markets. It encourages regulators to ensure sufficient oversight and guard against systemic risks.
The Biden order will also convene the Financial Stability Oversight Council, which monitors excessive risks to the U.S. financial system, to identify systemic risks posed by the assets and develop policy recommendations around regulatory gaps.
On mitigating illicit finance and national security risks associated with these assets, the order directs "an unprecedented focus of coordinated action" across U.S. agencies, and directs them to work with allies and partners to ensure alignment on frameworks, capabilities and partnerships.
To promote U.S. leadership in space, the Biden order directs the Department of Commerce to establish a framework to drive U.S. competitiveness and leadership in such blockchain-powered technologies.
It also says the Secretary of the Treasury will produce a report on the future of money and payment systems, to include implications for economic growth, financial inclusion, national security and overall technological innovation.
On the prospects of a digital dollar, the new order places urgency on additional research and development toward a U.S. version - as some 100 nations worldwide have explored or pursued trials with a digital dollar. The directive tasks the government with assessing related technological infrastructure and encourages the Federal Reserve to continue its research, development and assessment efforts. The Fed issued a related report in January outlining pros and cons of a U.S. CBDC, and said the U.S. central bank would likely not be the issuer of such digital wallets (see: US Federal Reserve Issues Report on Digital Dollar).
The directive also orders the U.S. government to take "concrete steps to study and support [such] technological advances" - while equally prioritizing privacy, security and combating illicit exploitation. Related policy recommendations will aim to mitigate negative climate effects of digital assets - as cryptomining, which requires high compute power, is a known pull on the electric grid.
In a joint statement, National Economic Council Director Brian Deese and national security adviser Jake Sullivan said the order "marks an intensification of our efforts to promote responsible innovation in the digital assets space."
They continue: "The approach outlined in the E.O. will reinforce U.S. leadership in the global financial system and safeguard the long-term efficacy of critical national security tools like sanctions and anti-money laundering frameworks."
Deese and Sullivan say the directive is a product of "months of work with stakeholders across government, industry, advocacy, academia, and international allies and partners."
And Treasury Secretary Janet Yellen said in a statement on Wednesday: "President Biden’s historic executive order calls for a coordinated and comprehensive approach to digital asset policy. This approach will support responsible innovation that could result in substantial benefits for the nation, consumers, and businesses."
Biden's directive, however, will drop amid a challenging and highly turbulent geopolitical environment - with war in Europe. Experts and industry watchers have suggested it may have been expedited in light of growing threats of cyber escalation from Russian actors and as experts fear the Putin regime may resort to cryptocurrencies to stabilize its sanctioned economy.
Treasury officials said late last week that the task would be nearly impossible - as Russia has not yet established proper guardrails for mass crypto adoption. Todd Conklin, the counsel to the deputy secretary of the Treasury, told blockchain intelligence firm TRM Labs that Putin cannot simply "flip a switch" and "power a G20, fiat-based economy" on cryptocurrency nearly overnight (see: US Officials Push Collaboration, AML Controls for Crypto).
Officials have nonetheless continued to warn that Russian elites and other entities may yet try to sidestep sanctions by transferring and obfuscating funds across the blockchain.
'First Step on the Journey'
Some blockchain security experts say the executive order was a long time in the making - and a necessary step.
"The real work to be done will be for the agencies in the wake of this E.O.," Ari Redbord, head of legal and government affairs at TRM Labs, tells ISMG. "The various studies and analyses that result in a more cohesive regulatory framework will be the impactful part. This order is the first step on that journey."
Redbord, a current ISMG contributor and former senior adviser to the deputy secretary of the Treasury, adds: "The really extraordinary thing about this is the focus on the power and promise of cryptocurrency as well as the risks and challenges. It talks about the growth of the crypto economy, the need for U.S. technological leadership and financial inclusion."
In a blog post published on Wednesday, Redbord says that at times the order reads "like a call to the digital space race," and adds that the portion on the U.S. CBDC shows a "clear focus" from the administration. He says the White House is viewing it as a national security and American competitiveness issue - citing China's trials with a digital yuan, criticized as a potential surveillance tool for the Xi Jinping-led Chinese government.
When media reports on Tuesday confirmed that the administration was close to issuing the E.O., Michael Fasanello, who has served in various roles within the U.S. Justice and Treasury departments and is assuming the role of chief compliance officer for hybrid financial service firm LVL, told ISMG: "Security will [no doubt] be front and center [here], particularly given the controversy of the digital assets space being involved in the Russo-Ukrainian conflict, and the Canadian Freedom Convoy before that. Crypto is now having its moment in the government spotlight" (see: Reports: White House Set to Issue Executive Order on Crypto).