On March 9, 2022, President Joe Biden issued an Executive Order1 outlining the government’s approach to addressing risks and harnessing the potential benefits of digital assets (e.g., cryptocurrencies) and their underlying technologies. Many are likening the Executive Order and its proactive approach to digital assets to similar government commentary on the rising commercial Internet in the mid-1990s, which seemingly accelerated the "dot-com boom" and explosion of Internet interest and access by mainstream America.
The Executive Order highlighted key areas, including protection of consumer, investor and business interests; financial stability; identifying and constraining illicit activity; U.S. cooperation and competitiveness on the global stage; financial inclusion; and responsible innovation.
In addition to emphasizing U.S. leadership in the global financial system and enunciating U.S. policy responsive to the "dramatic growth in markets for digital assets" (some $3 trillion in global market cap as of November 2021, up from $14 billion five years earlier), the Order commissions, over the next 6-9 months, a series of reports and corresponding legislative proposals directed to the President from executive branch agencies (including Treasury, the Department of Justice, and the Office of Science and Technology) and invites input from the (independent) Federal Reserve on:
- Prospects for a U.S. Central Bank Digital Currency (CBDC);
- Implications for financial market and payment system infrastructure;
- Risks to financial system integrity and stability;
- Recommendations for regulatory and legislative changes supporting law enforcement; and
- Energy usage and environmental impacts of cryptocurrency consensus mechanisms (i.e., "mining").
With scams relating to cryptocurrency running rampant, protecting consumers, investors and businesses is a critical thread running through the Order. It highlights illegal activity in the crypto space and calls for unprecedented levels of "coordinated action… for mitigating the digital asset-related illicit finance and national security risks” (reinforcing very recent comments from U.S. Deputy Attorney General Lisa Monaco – see Calfee's First Alert on the new Cybercrime Taskforce). In the present context of the war in Ukraine, there is concern that Russian oligarchs (and even the Russian government) may try to utilize cryptocurrencies to evade enforcement of international financial sanctions.
Regarding a U.S. CBDC, the President stated that "[s]overeign money is at the core of a well-functioning financial system,” acknowledged the potential risk to U.S. financial primacy of foreign CBDCs, and emphasized that "[m]y Administration places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC."
Crypto markets responded favorably to the Executive Order, with bitcoin rising 9.1% (to $42,280) and Ethereum blockchain network 6.3% (to $2,740) on the afternoon it was issued, and U.S. exchange traded funds (ETFs) tracking bitcoins and U.S. crypto miners surging as well.2 Industry comments were also very favorable. Jeremy Allaire, co-founder and CEO of Circle (world’s second-largest stablecoin) described this as a "watershed moment for crypto, digital assets and Web3;" Kristin Smith, executive director of the Blockchain Association, called the Order’s language "incredibly bullish… an acknowledgement that this is a growing, important space;” and Alexis Ohanian (co-founder of Reddit
and now a major investor in crypto technology) noted, "I’m grateful … the utility of this tech has proven to be very obvious to all levels of our government."3