The president signed an executive order directing financial regulators to work together to better understand the risks and opportunities presented by digital assets.
WASHINGTON — On Wednesday, President Biden signed an executive order directing the federal government to develop a plan to regulate cryptocurrencies, recognizing their popularity and potential to destabilize traditional money and markets.
The order, which has been in the works for months, will help financial regulators better understand the risks and opportunities presented by digital assets, particularly in the areas of consumer protection, national security, and illicit finance.
According to a fact sheet on the order released by the Biden administration, the move is in response to “explosive growth” in digital assets, a growing number of countries investigating central bank digital currencies, and a desire to maintain American technological leadership. It instructs financial regulators to continue work that began in earnest last year, such as researching and reporting on the creation of a digital dollar.
The eventual outcomes could help shape the contours of a rapidly innovating industry that has quickly moved into the mainstream, but critics say enables illicit activity and creates exorbitant financial risks for both consumers and the economy.
“The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier,” the White House said in a statement. “However, it also has significant implications for consumer protection, financial stability, national security, and climate risk.”
The order establishes a national policy for digital assets in six areas: consumer and investor protection, financial stability, illicit finance, US leadership in the global financial system and economic competitiveness, financial inclusion, and responsible innovation.
Cryptocurrency experts have long advocated for the government to streamline what had previously been a haphazard approach.
“We need clear answers on how to proceed,” said Louis Lehot, a cryptocurrency expert at the law firm Foley & Lardner.
The order comes amid fears that Moscow will use cryptocurrency to avoid punishing sanctions imposed by the US government in response to Russia’s invasion of Ukraine. A senior administration official who detailed the order’s contents but was not authorized to speak publicly about it told reporters on Tuesday evening that work on it began before the Ukraine war. According to the official, cryptocurrency would not be a viable way for Russia to avoid sanctions.
However, the geopolitical environment exacerbates long-standing concerns about the role of anonymity in cryptocurrency and the risk of illicit activity that results. The blockchain technology that underpins cryptocurrencies allows anyone who can read computer code to track transactions, ostensibly eliminating the need for trust between transacting parties and enabling anonymity.
Names and personal identifying information are not always required to participate in the crypto economy; code runs the show on many decentralized platforms, programs, and apps. However, as the crypto industry and its offerings grow in popularity, attracting ever more money to projects that defy traditional business definitions, vast amounts of digital assets are being managed by major players — including venture capitalists and developers — who operate anonymously.
How far regulators will go to change this will become clear after they conduct the studies and write the reports required by the order.