U.S. President Joe Biden signed an executive order on Wednesday calling on the government to examine the risks and benefits of cryptocurrencies.
It’s a long-awaited directive that has had the crypto industry on edge, not least due to growing regulatory concern around the world surrounding the nascent digital asset market.
There had been reports of a divide between White House officials and Treasury Secretary Janet Yellen leading to delays in the policy rollout.
The crypto market got wind of the executive order overnight after the Treasury accidentally put out a since-deleted statement calling it “historic” and releasing some of the details ahead of time.
The order was finally signed Wednesday. It calls on federal agencies to take a unified approach to regulation and oversight of digital assets, according to a White House fact sheet.
Here are the key things to know.
The measures announced Wednesday will focus on six key areas:
- Consumer and investor protection
- Financial stability
- Illicit activity
- U.S. competitiveness on a global stage
- Financial inclusion
- Responsible innovation
Protecting consumers is an important part of the directive. There have been countless stories of investors falling for crypto scams, or losing huge sums of money through cyberattacks on exchanges or users themselves.
The Biden administration is calling on the Treasury to assess and develop policy recommendations on crypto. It also wants regulators to “ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.”
While policymakers have been keen to downplay any systemic risks resulting from crypto, there have been increasing concerns over the role played by stablecoins. These are digital tokens that are meant to be pegged to the value of existing currencies like the U.S. dollar.
Tether, the world’s largest stablecoin with $80 billion in circulation, has attracted the ire of regulators over claims its token is not sufficiently backed by dollars held in reserve. Tether says its coin is fully backed, however the makeup of its reserves includes short-term debt obligations like commercial paper, not just cash.
The topic of stablecoins was notably absent from the White House’s announcement Wednesday, though Yellen has made clear she wants to see Congress introducing regulation for the sector.
Another key area Biden’s executive order focuses on is rooting out illegal activity in the crypto space.
The president has called for an “unprecedented focus of coordinated action” from federal agencies in mitigating illicit finance and national security risks posed by cryptocurrencies. He is also urging international collaboration on the issue.
Last month, U.S. officials seized $3.6 billion worth of bitcoin — their biggest seizure of cryptocurrencies ever — related to the 2016 hack of crypto exchange Bitfinex.
Proponents of crypto say it is highly difficult for funds to be laundered through digital currency, however, as all transactions are kept public on an unchangeable record-keeping system known as the blockchain.
It’s a more subtle point, but Biden also dropped a mention of the sheer energy cost baked into digital currencies like bitcoin. He wants the government to study ways to make crypto innovation more “responsible,” reducing any negative climate impacts.
Bitcoin relies on a mechanism known as proof of work to confirm transactions and generate new units of currency. A decentralized network of computers competes to solve complex math puzzles in order to mine the cryptocurrency. The more computing power a miner has, the higher their chances of being rewarded in new bitcoin.
That has raised alarm bells for policymakers around the world, with China even banning crypto mining completely last year. That move led to an exodus of crypto miners from the country to the U.S. and other countries, such as Kazakhstan.
Part of the language in the White House announcement focuses on giving the U.S. a competitive edge over other countries when it comes to crypto development. This is especially significant now that China has effectively banned cryptocurrencies.
Biden has tasked the Department of Commerce with “establishing a framework to drive U.S. competitiveness and leadership in, and leveraging of digital asset technologies.”
Several crypto industry figures have called for such action, including the bosses of Coinbase, Kraken and the Winklevoss twins’ Gemini exchange.
The Blockchain Association, an organization that represents multiple well-known crypto companies, said Wednesday that Biden “has the opportunity to ensure America remains the global leader for technological innovation for years to come.”
Finally, the Biden administration also wants to explore a digital version of the dollar.
It comes as China has led the charge toward central bank digital currencies, or CBDCs, with more and more people using smartphones to make payments and handle their finances.
Biden isn’t saying whether the U.S. should launch its own digital currency. Rather, he’s calling on the government to place “urgency” on research and development of a potential CBDC.
The Federal Reserve last year began work on exploring the potential issuance of a digital dollar. The central bank released a long-awaited report detailing the pros and cons of such virtual money, but didn’t take a position yet on whether it thinks the U.S. should issue one.
While CBDCs could rapidly speed up the settlement of payments, policymakers are evaluating a number of issues around financial stability and privacy.
Delivery of the new policy agenda removes a key source of uncertainty for an industry that has already been rocked by numerous regulatory hiccups and scandals.
Earlier this year, crypto start-up BlockFi was hit with a record $50 million fine by the U.S. Securities and Exchange Commission over allegations it violated securities laws with its retail lending product. The penalty was part of a larger $100 million settlement which included payments to 32 states.
Coinbase has similarly run into trouble with the watchdog, though it managed to avoid punishment. The SEC threatened Coinbase with legal action over a product similar to BlockFi’s which offered users interest payments on their crypto holdings. The company subsequently dropped plans for the service.
“This is a watershed moment for crypto, digital assets, and Web 3, akin to the 1996/1997 whole of government wakeup to the commercial internet,” Jeremy Allaire, CEO of crypto firm Circle, said on Twitter.
Crypto investors appeared to agree. Prices of bitcoin surged above $42,000 Wednesday on optimism over the U.S. executive action.
Clarification: This story has been updated to clarify that the move by President Biden was an executive action.