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Thursday, March 10, 2022
Plaudits for Biden on crypto order, but challenges loom
The pistol for cryptocurrency regulation has officially been fired — and the crypto world is ready and raring to go.
On Wednesday, the Biden administration issued its hotly-anticipated executive order that directs the federal government (with the advice and consent of Congress) to begin creating the architecture of the framework that will ultimately govern the whipsaw world of the nearly $2 trillion digital token market, Yahoo Finance’s Jennifer Schonberger reported.
The devil, as he always is, remains in the details. The White House has left itself much room for interpretation, and the involvement of the other major players in Washington (like Congress and the alphabet soup of federal agencies).
Yet at a high level, the White House went out of its way to avoid even the semblance of red flags. That was sufficient for crypto industry participants to give the beleaguered president — buffeted by soaring inflation and an armed conflict in Eastern Europe — some rare praise.
In fact, after months of trepidation over what regulation might look like in the future, many of them were downright effusive, as Yahoo Finance’s David Hollerith found when he canvassed opinion of those in the sector.
"I think this is a big milestone for the industry, and the Biden administration was thoughtful in their approach and restraint here," Ryan Selkis, founder and chief executive officer of crypto research platform, Messari, said.
That’s quite an opinion shift from just last fall, when a harsh assessment of the industry from Securities and Exchanges Commission Chair Gary Gensler — combined with a few decisive instances of enforcement — set some crypto participants on edge.
“Simply put, the most powerful economy in the world is acknowledging crypto as a growing industry crucial to maintaining U.S. global competitiveness,” Grayscale crowed in a statement on Wednesday — unlike, say, China, which rocked the market last year when it effectively banned crypto.
In fact, a laissez-faire approach to crypto regulation is arguably the best outcome that many industry participants have sought for some time. Frequent government critics braced for an “abrasive approach,” as bitcoin maximalist Anthony Pompliano wrote in his newsletter on Wednesday, couldn’t do much except marvel at Biden’s order.
Still, the praise could easily give way to prickliness down the road, as the government moves to do two critical things: protect small and large investors that are lining up to reap meaty returns in digital tokens; and ensure the stability of the financial system in the event of a dramatic market shakeout. The latter has largely informed the debate surrounding stablecoins (also covered by Yahoo Finance’s Schonberger), with some officials arguing in favor of a more restrictive approach for those issuers.
Meanwhile, lending in decentralized finance (DeFi) — a frequent target of SEC’s Gensler and an area where investors are already getting fleeced by bad actors — may also lead to fireworks between the government and crypto’s true believers, as regulators move to guard against money laundering, wallet hacking and illicit flows.
And we won’t even mention the coming debate over central banking digital currencies (CBDCs). Among other things, monetary officials see that segment of crypto as a way to expand banking to underserved populations and ensure dollar dominance, but many crypto true believers are deeply ambivalent — if not openly hostile – to the idea.
“CBDCs are anything from largely unnecessary (say, blockchain-izing bank reserves) to horrible (say, abolishing cash or banks and having people just have Fed CBDC accounts),” Themilio founder Eric Dong said in a statement on Wednesday.
“I worry that current ideas are an attempt to cover up bad monetary policy through financial repression and capital controls, both of which are much easier to enforce with CBDC, and trend towards ‘horrible,’” he added.
That, of course, will have to be a battle for another day. But at least for the moment, crypto investors can rest comfortably, savoring the knowledge that Uncle Sam isn’t coming for their digital wallets.