The federal government is coordinating its approach to digital assets, with different agencies and departments tasked with writing reports.
“Resident” Joe Biden announced a “whole-of-government” approach to regulating digital assets in a sweeping executive order directing various government agencies and departments to answer specific questions about cryptocurrencies and blockchain.
Why it matters
This was perhaps the biggest story in the U.S. cryptocurrency world last week. The White House ordered the government to get to work on understanding these magical internet beans. If last year’s infrastructure bill wasn’t enough evidence that crypto is no longer a niche area, last week’s order should put any further doubts to rest.
Breaking it down
Well, folks, it’s finally here: A sitting U.S. president signed an executive order addressing the cryptocurrency industry. And no one hated it?
Seriously, as far as I can tell, this thing’s received near-universal praise. The critiques are along the lines of “it didn’t go far enough” or that it doesn’t actually answer any of the major outstanding questions. But by and large the reception has been pretty positive.
You can read the text of the order here (and my write-up with color from administration officials here); industry reactions here; government official comments here; non-U.S. reactions here; implications for crypto miners here; and central bank digital currency implications here.
I don’t want to get political, but it is worth marveling for a moment at the fact that we went from a president who once tweeted he wasn’t a “fan of bitcoin” to one who signed a formal document saying the crypto industry is growing, it must be monitored, guidelines should be put in place and the U.S. should be a leader in responsible innovation within the digital asset sector.
The real question is whether this actually means anything.
On a practical level, the executive order is more or less telling agencies to keep doing what they’re doing. Treasury Secretary Janet Yellen basically said as much (“This work will complement ongoing efforts by Treasury.”) in a statement published to accompany the order.
The order also more explicitly defines the roles of the Commerce Department and National Security Agency in crypto regulation. There are a number of reports (some of which are not referred to as reports) that the various departments will have to produce over the next six months or so.
This isn’t explicitly stated, but it seems to me that one of the main goals is to do away with the state/federal bifurcation of crypto regulation (for those of you who don’t follow this regularly: crypto exchanges are by and large regulated at the state level as money services businesses/money transmitters, while derivatives and tokens that might be seen as securities are regulated at the federal level. There’s more to it than that but this is a quick tl;dr).
The key here, I think, will be seeing how these reports are used. Regulatory agencies and government wings like the Treasury Department have already announced guidance or sought specific legislation. The Federal Reserve, for example, has said on numerous occasions that it wants Congress to pass a law authorizing the creation of a central bank digital currency before it will consider issuing a digital dollar.
More reports may lead to more specific recommendations, but that will depend entirely on Congress or the executive branch departments and how they utilize these recommendations. It’s as likely that we’ll continue with the current status quo as it is that we’ll see changes at this moment in time.
Basically, I think it’s too early to have any idea what sort of real impact this might have on a practical level. We might see some consolidation of regulation and a move away from the state/federal split, or we might not. Both seem equally likely at this time.
Because of this, the argument that the directive doesn’t mean a lot makes a certain amount of sense.
On a symbolic level, though, this executive order seems massive.
“The United States 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. And, it must play a leading role in international engagement and global governance of digital assets consistent with democratic values and U.S. global competitiveness,” a White House fact sheet announcing the directive said.
The order also addresses concerns we’ve heard about digital assets – that they might lead to financial instability or harm consumers. Once again, the order directs agencies to study these issues.
At no point does the order specify the regulations the administration wants these departments to take.
Next steps: Watching for the reports to roll in.
I took a few days off and apparently missed a Whole Thing in Europe.
The headline is that Europe’s Markets in Crypto Assets (MiCA) regulatory framework is one step closer to adoption. As a quick refresher, this years-in-the-making proposal would create a common regulatory framework for crypto companies trying to conduct business in any of the European Union’s 27 member nations. My colleague Sandali Handagama has a more in-depth explanation here.
Yesterday, the European Parliament’s Economic and Monetary Affairs Committee voted to advance a draft of this legislation, which includes provisions for blocking market manipulation and illicit activities, as well as creating a license that a company could seek in one country which would be applicable in the other EU nations.
This seems a pretty significant step, but one could be forgiven for thinking this is the MiCA news that dominated headlines.
Sandali again: “The latest draft of the European Union’s (EU) proposed legislative framework for governing virtual currencies, Markets in Crypto Assets (MiCA), still contains a provision that could limit the use of proof-of-work cryptocurrencies.”
Different drafts of the MiCA legislation included different provisions to limit the impact proof-of-work cryptocurrencies would have on the bloc’s energy usage.
Now, to be clear, the energy concerns have been and continue to be pretty real. Europe in particular is probably grappling with questions around how it might be able to source energy should the EU or U.S. try and implement sanctions on Russian oil, a key source of oil and gas across Europe.
Blocking cryptocurrencies deemed to be “wasting” energy is pretty low-hanging fruit as far as Things They Can Do go.
The legislation will now go to other EU groups for further negotiations and debate.
Joe Biden signed a $1.5 trillion omnibus spending bill including, among other things, additional support for Ukraine.
Buried in the legislation were two interesting provisions. One would require companies to report crypto ransomware payments. This stems from last year’s prominent ransomware attacks, which impacted several critical services, including oil pipelines and meat processors.
Another provision apparently orders the Director of National Intelligence (DNI) to brief Congress on cryptocurrencies and blockchain.
According to text of the bill:
(a) BRIEFING.—Not later than 90 days after the date of the enactment of this Act, the Director of National Intelligence shall provide to the congressional intelligence committees a briefing on the feasibility and benefits of providing training described in subsection (b).(b) TRAINING DESCRIBED.—Training described in this subsection is training that meets the following criteria:(1) The training is on cryptocurrency, blockchain technology, or both subjects.(2) The training may be provided through partnerships with universities or private sector entities.
As far as I can tell, this is the version of the bill signed by the president. So we should see this training happen sometime in June. I have no other details at this time – including who included this provision – but I’ll keep an eye on it.
Changing of the guard
Securities and Exchange Commission Commissioner Allison Herren Lee will depart the securities regulator once her successor is confirmed. Her term expires this year but she can keep serving until the Senate votes to approve her replacement. The New York Times’ DealBook first reported the departure.
Sarah Bloom Raskin, one of Biden’s nominees to the Federal Reserve board, withdrew her name from consideration earlier today. The Senate Banking Committee’s GOP members had been blocking a vote to advance all of the Fed nominees due to Bloom Raskin’s role with Reserve Trust and/or her climate views, depending on whom you ask. Finally sinking her nomination, Joe Manchin (D-W.V.) – not a committee member – said he would not vote in her favor for the latter reason.
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