On March 9, 2022, President Biden signed an Executive Order on Ensuring Responsible Development of Digital Assets. According to an accompanying fact sheet, it is the “first ever, whole-of-government approach” to regulating cryptocurrency activities. Several areas are of focus in the order: consumer and investor protection, financial stability, illicit finance, U.S. competitiveness, financial inclusion, and responsible innovation.
The order is an extremely significant step toward developing a comprehensive federal approach on digital assets. The order does not prescribe a regulatory framework itself or require various agencies and departments to issue new rules. Instead, the order directs various parts of the federal government to study crypto and issue a number of reports and recommendations on potential regulatory or legislative actions.
Background: As described by a recent Axios piece, the order is "an acknowledgement that crypto is here to stay, and moves the government one step closer to a policy framework that would legitimize — and regulate — its use in the U.S."
- Digital assets, including crypto, have had explosive growth, surpassing $3 trillion in market cap last November.
- The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system.
- Regulators were already keenly focused on crypto, but the use of crypto to facilitate illicit finance and corruption, especially given the swath of recent sanctions against Russia, has made crypto regulation an even greater priority.
What's Happening: With the executive order, Biden aims to create a national policy for digital assets:
- The Treasury Department and other agencies are tasked with issuing recommendations to address consumer and investor protections.
- Treasury is also asked to produce a report on the future of money and payment systems, to assess how big a role cryptocurrencies may have in it.
- The Financial Stability Oversight Council is expected to identify economy-wide, systemic financial risks posed by crypto and propose recommendations to address regulatory gaps.
- The Commerce Department is tasked with establishing a framework that would leverage crypto technologies to reinforce U.S. leadership in the global financial system.
- Finally, the order encourages the Federal Reserve to continue research and report on the possible development of a U.S. central bank digital currency (CBDC), including the development of a strategic plan that evaluates the necessary steps and requirements for the potential implementation and launch of a U.S. CDBC.
While many activities involving digital assets are within the scope of existing domestic laws and regulations . . . [the] growing development and adoption of digital assets and related innovations, as well as inconsistent controls to defend against certain key risks, necessitate an evolution and alignment of the United States Government approach to digital assets.