Biden Should Integrate Bitcoin Into Us Financial System, Says Niall Ferguson
The economic historian said that President-elect Biden’s administration should consider Bitcoin as an alternative to a “Chinese-style digital dollar.” Biden Should Integrate Bitcoin Into Us Financial System, Says Niall Ferguson
British economic and financial historian Niall Ferguson said the United States needs to find its own path in adopting cryptocurrencies, rather than “building [its] own versions of China’s electronic payments systems.”
In a Bloomberg opinion piece, Ferguson said Sunday that the current pandemic has generally been good for cryptocurrency adoption, accelerating a “monetary revolution” around the world.
However, the historian noted that China has been “advancing rapidly” in the rollout of its digital yuan and increasing use of mobile payments. Apps like Alipay and WeChat Pay reportedly handle roughly $40 trillion in transactions annually.
The historian believes that these measures by China are serving as a template for other countries developing cross-border payment systems and remittance payments. However, he advised against the U.S. doing so:
“Even governments that are resisting Chinese financial penetration, such as India, are essentially building their own versions of China’s electronic payments systems,” said Ferguson. “Rather than seeking to create a Chinese-style digital dollar, Joe Biden’s nascent administration should recognize the benefits of integrating Bitcoin into the U.S. financial system.”
Ferguson added that authorities in the U.S. already have methods in place to deal with enforcement surrounding Bitcoin (BTC).
The Internal Revenue Service now requires individuals to make a declaration related to their crypto holdings on their returns and may be going after Coinbase users who do not comply with tax and reporting requirements. In addition, the Federal Bureau of Investigation has had its eyes on cases of money laundering using crypto.
“The point is simply that the financial data of law-abiding individuals is better protected by Bitcoin than by Alipay,” said the historian.
The president-elect’s personal views on crypto, central bank digital currencies and Bitcoin are not well known, but there are indications that people in his administration could potentially help guide crypto into a friendlier regulatory framework in the United States. For instance, Biden may be tapping former chairman of the Commodity Futures Trading Commission Gary Gensler to be his deputy treasury secretary.
Biden Team Will Boost Crypto’s Role In Us Infrastructure, Says Circle CEO Allaire
Allaire also sees political moderation as the best scenario for continued crypto development.
One of the leaders in U.S. crypto is optimistic that the space will grow under the administration of Joe Biden governing from the middle.
Jeremy Allaire, CEO of Circle, took to CNBC’s Squawk Box on Monday to argue that the Biden administration will push crypto forward as part of a broad effort to update infrastructure:
“I think that they will ultimately be supportive because this is an infrastructure change as big as the initial commercial internet, and they’re going to be focused on infrastructure changes that make America more competitive.”
Overall, moderate politics benefit crypto, Allaire reasoned: “You’ve got moderates, both on the left and the right, who I think see this constructively.”
Allaire’s Comments Follow A Twitter Thread On Sunday That Included Similar Comments About Partisan Division:
2/14 The stakes are very high for society and the economy; the far-left wants to paint crypto as an anti-big tech and consumer protection issue, the far-right wants to paint crypto as a national security threat; the libertarians and moderates see the human economic potential.
— Jeremy Allaire (@jerallaire) December 6, 2020
On Squawk Box today, Allaire referenced, in particular, concerns that the left wing in the United States had taken a hard line against new financial tools, especially stablecoins:
“You have on the very liberal end of the spectrum a view that somehow this is not good for individuals who have less access to the financial system, when in fact, the opposite is the case, that this technology — in particular stablecoins — hold promise of opening up and widening access to the financial system more deeply than the existing banking system.”
These comments are likely in reference to a bill introduced last week that would outlaw all stablecoins that do not file the same registrations as traditional banks, including Circle’s own USD Coin (USDC).
In response to a question as to whether recent moves against stablecoins were linked to proposals for the Federal Reserve to issue its own central bank digital currency, Allaire countered that private firms are just much further ahead.
How The Incoming Administration Can Fix Crypto Regulation
As 2020 comes to a close, it is a good time to review the regulatory landscape for crypto assets in the U.S. and provide suggestions to the Joe Biden administration that will be arriving in January 2021. Our advice would be to emphasize clarity, consistency and more collaboration across regulatory agencies.
The biggest impact on crypto policy in the U.S. during the next four years will come from federal agencies – and the regulators staffing them – that are responsible for overseeing our financial system.
As with all administration transitions, key appointments to prominent roles in agencies such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are expected to be made in the upcoming months. The CFTC’s head, Heath Tarbert, announced last week that he is leaving early next year, for instance.
* Donna Redel is the former chairman of COMEX, a board member of New York Angels and an adjunct professor of law at Fordham Law School. Olta Andoni is an attorney at Zlatkin Wong, LLP and an adjunct professor of law at Chicago-Kent, College of Law.
Crypto’s speed of innovation continues to outpace regulatory adoption and/or adaption. Hence, flexible, principles-based regulation, such as the approach taken by the CFTC, would create less friction at the intersection of innovation and technology.
Regulators walk a tightrope between balancing the need to protect retail inventors as well as the integrity of markets while simultaneously trying to foster innovation and business growth, especially for startups.
Let’s Summarize Where Regulation Stands Right Now
Securities Law Clarity
We have not received substantial additional clarity from the SEC following its publication of its Framework for Digital Assets (April 2019) which has left many unanswered questions and raised new ones. For example, we are not clear on who or what is, or is not, an “Active Participant,” and how one applies the Howey Test to the decentralized protocols.
Many crypto lawyers have expressed concerns about the Howey Test prong of the “efforts of others” as applicable to decentralized finance (DeFi) protocols. This prong refers to a purchaser’s reasonable expectations of profits.
Specific concerns relate to the cash flows (“dividends”) from staking and the voting rights of governance tokens, both characteristics that enhance the likelihood of turning the token into a security. The latter has made venture capitalists (VC) more reluctant to fully utilize their voting rights.
While the SEC has made enforcement actions and issued at least three no-action letters, these have not provided insight into some of the most common project structures that are prominent today. For example, the results of both Telegram and Kik cases did not answer the big question of when a token would be considered a security.
Furthermore, cases involving PocketFul of Quarters and Vcoin offered only the narrowest pathway for a token to not be considered a security. Therefore, projects and their legal counsels have neither clarity nor consistency as to when a project would be considered “sufficiently” decentralized (or even whether Director William Hinman’s speech is to be considered good guidance).
The guidance provided by the SEC is especially hard to implement in an industry where projects have enormous variation in structure and design. Commissioner Hester Peirce proposed a Safe Harbor and engaged with many attorneys, including ourselves, on ways in which to modify their prior guidance and other regulations, including regulations related to capital formation (e.g. Reg A+), intermediaries like transfer agents and exchanges.
These proposals may be subject to some critique. But we believe they should not be abandoned, as they provide a workable securities law framework and the basis for resolving uncertainty in the U.S.
Custody is a key issue for the continued development of digital assets for both institutional and retail investors. It remains unclear how existing custody rules are applicable to digital assets. The recent letter from Rep. Tom Emmer (R-Minn.) and others to SEC Chairman Jay Clayton emphasized the need for the SEC and FINRA to issue further guidance regarding the custody of digital assets.
Turning to securities on the blockchain, the SEC and FINRA are making slow progress on approvals of Alternative Trading Systems (ATS) that are necessary to trade security tokens. Accelerating the adoption of ATS will encourage innovation of all types of securities on the blockchain and potentially move traditional securities to blockchain.
This would enhance investor protection and potentially address critical governance and voting issues wherein the number of shares owned and the timing of the ownership are difficult to ascertain as we saw in both the Del Monte and Dell cases.
“Given the complexity of the regulatory framework in the U.S., the incoming administration should have a unified strategic approach that is clear, consistent and collaborative.”
Another prominent issue is the approval of exchange-traded funds (ETFs), which are a type of investment funds and exchange products traded on stock exchanges. The industry hopes to put crypto-denominated ETFs on a similar trajectory to gold ETFs, which were first listed in 2003 and now have a market value of $132 billion.
As demonstrated by the demand for Grayscale offerings trading in the secondary markets, retail customers are seeking to invest in SEC-approved products. Additionally, improved liquidity and open interest on the CME, a CFTC regulated exchange, should help assuage the SEC’s concerns relating to pricing transparency.
A key focus of the new administration should be to encourage renewed engagement by the SEC and CFTC with the industry and the institutional participants which will likely have a significant influence on the development of retail markets going forward. [Grayscale is a sister company to CoinDesk.]
It would be helpful if there was more transparency from the SEC’s informal guidance from many of the closed door meetings so that the industry could gain a greater insight and benefit.
We applaud the recent announcement that the FinTech Hub, led by Valerie A. Szczepanik, was advanced to a stand alone division reporting directly to the Chairman. This may further the SEC’s open-door policy of engaging in discussions with the community and projects.
Commodities Law Clarity
The CFTC uses principle-based regulation, in contrast to the SEC’s rule-based regulation. Hence, often the CFTC provides more clarity and flexibility.
It is clear the two main cryptocurrencies, bitcoin and ether, are commodities, according to the CFTC. CFTC guidance to futures commission merchants on custodying crypto creates opportunities for new entrants, as well as established members of clearing houses, to engage in crypto, and enable exchanges to develop new listed products such as lending and swaps.
There was a misunderstanding by many marketplace participants regarding the timing of the implementation date of the final interpretive guidance about what constitutes “actual delivery” of virtual currencies.
The interpretation was approved on March 24, 2020, but COVID-19 delayed both the listing in the Federal Register and the subsequent adoption by some exchanges. This caused some confusion regarding Coinbase’s short time fuse for the implementation of the rule, which contributed to a quick sell-off in crypto assets.
The joint action by the CFTC and Department of Justice (DOJ) against BitMEX to enforce regulations and particularly the Bank Secrecy Act raised the ante for exchanges. The chairman has been clear to emphasize that crypto exchanges are subject to all federal regulations while having stated the CFTC will “continue to do its part to encourage responsible fintech innovation through sound regulation.”
The DeFi “experiment” has neither clarity nor consistency and little transparency in guidance and enforcement while continuing to raise red flags for multiple agencies. As Commissioner Hester Peirce stated during her recent talk at the LA Blockchain Summit, DeFi projects are posing a challenge to the SEC similar to the initial coin offering (ICO) boom of the 2017, while also presenting more difficult legal issues for the regulators to solve.
It is ironic companies that pursue regulatory approval for products and markets are waiting endlessly for an unified direction and approval from the agencies while many DeFI projects proceed without regulatory clarity until some date in the future when another DAO-type report will be forthcoming.
Legal concerns in DeFi are focused on token launches, swaps, exploits or hacks of protocols, smart contract bugs, airdrops and the applicability of proxy rules. The regulatory agencies should be concerned about the potential of systemic risk from leverage in yield farming/lending. The SEC should review governance tokens when rights begin to mirror those in centralized finance (CeFi).
Cautious VCs are still reluctant to exercise their voting rights for fear it may lead to the determination the project is more centralized. We still do not have clarity as to what exactly are the measures to determine the moment(s) in time when a protocol is sufficiently decentralized and importantly when it might morph back to centralized.
DeFi’s almost total lack of know-your-customer/anti-money laundering (KYC/AML) in projects and exchanges also raises questions as to how blockchain technologies can remain integrated with the wider crypto space, which is facing more stringent global Financial Action Task Force (FATF) rules.
The U.S. Treasury Dept. has a portfolio of agencies with crypto nexus that have been neither clear nor consistent. On one hand, we have the recent speculations about moves by Treasury Secretary Steve Mnunchin regarding restriction on hosted wallets; on the other hand, we have Office of the Comptroller of the Currency (OCC) Acting Chairman Brian Brooks putting forth progressive rules for the banking sector and digital assets.
The OCC interpretive letter stated that national banks and federal savings associations have the authority to provide custody services for customers with respect to cryptocurrency and other digital assets.
A clear and consistent policy regarding digital assets would inform the direction of regulation while also being supportive of innovation. An approach that is proactive with respect to new products/markets that want the imprimatur of being regulated under U.S. law would show global leadership and indicate an awareness of competition with other countries.
If the United States wants to be the foremost hub of cryptocurrency innovation it has to have regulation that balances the demands of adoption while considering U.S. values and foreign policy interests. Given the complexity of the regulatory framework in the U.S., the incoming administration should have a unified strategic approach that is clear, consistent and collaborative throughout the federal agencies.
Novogratz Hopes Biden Admin Reverses Trump’s Anti-Crypto Stance
Galaxy Digital CEO calls Trump’s crypto policies “anti-dollar” and “anti-innovation.”
The United States is in desperate need of open-minded cryptocurrency regulations from the incoming Biden administration, according to Galaxy Digital CEO Mike Novogratz.
Appearing in a Thursday segment of CNBC’s Sqwuak Box, Novogratz said the Bitcoin (BTC) bull market has proven resilient to the recent wave of anti-crypto rhetoric coming from Capitol Hill:
“It tells you about how powerful this bull market is […] They are throwing lots at the system, and it’s not actually impacting it.”
Nevertheless, for the cryptocurrency industry to truly succeed in the long run, more regulatory clarity is needed. Referring to the incoming Biden administration, Novogratz said:
“I’m hoping, you know — we get a change of the guard in 20 days — I’m hoping we can get some more open-minded regulators.”
President Trump’s departure from the White House is proving to be a rocky period for the cryptocurrency industry. Last week, the Treasury’s Financial Crimes Enforcement Network proposed new disclosure rules for self-hosted wallets.
In a sign that the Treasury was trying to jam legislation through, it provided only a 15-day comment period, which is much shorter than the typical 60-day period.
In another blow to some industry participants, the Securities and Exchange Commission, or SEC, is suing Ripple for allegedly selling an unregistered security in the form of XRP tokens. The securities regulator made its case in a painstakingly detailed 71-page takedown of Ripple released earlier this week.
The 70-page SEC complaint against #Ripple is a teardown of breathtaking detail and scope. It’s not a petty or vindictive gesture: it’s a well-researched and well-articulated document that alleges a scheme of epic proportions.
— Jon Rice (@JonRiceCrypto) December 22, 2020
Novogratz and others believe that archaic cryptocurrency laws will hinder innovation and adoption in the United States, paving the way for rivals like China to dominate the market. Ironically, this is one of the arguments being used by Ripple to counter the SEC’s lawsuit.
In his interview with CNBC, Novogratz said stubborn crypto laws have “a lot of unintended consequences,” adding that, “it’s going to push a lot of the cool stuff that’s happening in crypto offshore.”
An Online Future For Finance Is Inevitable, Says OCC’s Brooks
Brooks considers the migration of the financial system onto the internet “inevitable.”
The departing leader of the United States Office of the Comptroller of the Currency is convinced that the future of finance is blockchain-native, per a conversation with crypto analytics firm Elliptic on Wednesday.
Described by Elliptic CEO Simone Maini as “a fairy godfather to the crypto industry,” Brian Brooks has been a leading light in U.S. federal policy toward crypto since taking over for Comptroller Joseph Otting in May 2020. Today, he outlined views that follow an opinion piece he wrote for the Financial Times yesterday.
Namely, Brooks took the opportunity to promote his vision of an OCC that checks algorithms rather than bankers for responsible behavior: “Imagine a world where we’re granting charters to softwares as opposed to individuals.”
The vision falls in line with Brooks’ overall work to push forward a national charter for non-depository financial institutions, which detractors have called a “nonbank charter.” In broader terms, the acting comptroller saw the technological change that he is trying to prepare laws for as inevitable:
“My thesis is that it is inevitable that the future of finance will go on the internet like information did 25 years ago, and we need to prepare banks for that world and we need to prepare banking charters for that world.”
Describing recent political deplatforming from social media and payments processors as “chilling,” Brooks went on to argue that:
“Crypto is about freedom. There is no CEO to deplatform. If you didn’t believe freedom mattered last week, you should believe it matters today.”
However, Brooks confirmed what has long been suspected: His time at the OCC will end with the incoming Biden administration. “There will be another comptroller and it won’t be me,” he said.
Report Urges US Government To Focus On Blockchain, Crypto And A ‘Digital Dollar’
Will the new Biden–Harris administration be able to enforce a technology strategy focused on blockchain, cryptocurrency and digital assets?
As the COVID-19 pandemic unfolds, the Biden–Harris administration has begun implementing new strategies to restore the U.S. economy. While notable, implementing emerging technologies, while ensuring data privacy, should also be a top priority for the White House administration to consider.
Don Tapscott, executive chairman of the Blockchain Research Institute — a think tank aimed at advancing blockchain and other emerging technologies — told Cointelegraph that the COVID-19 pandemic has spurred an era, in which government leaders must now acknowledge digital realities: “This is the time for government leaders to develop a comprehensive framework for achieving prosperity, justice, sustainability, social cohesion and good government.”
Tapscott believes that the world is facing the advent of “the second era of the digital age,” which he describes as a trivergance of artificial intelligence, the Internet of Things and blockchain technologies. As such, an innovation push is taking place — one that is forcing federal leaders to become knowledgeable about how these technologies can be enforced on a government level.
BRI Report Emphasizes Blockchain And Self-Sovereign Identity
In an attempt to raise awareness for emerging technologies, the BRI and the Chamber of Digital Commerce — a D.C.-based trade association representing the digital asset and blockchain industry — have composed a 120-page report detailing how U.S. government officials can reimagine its technology strategy and policy.
The document also explains how leaders can minimize unwanted consequences of emerging technologies, such as data abuse or job losses, as a result of AI-powered machines.
The report outlines a series of five priorities aimed at helping the Biden–Harris administration to achieve a long-term digital strategy. They include embracing cybersecurity to protect identity and privacy; understanding the digital dollar and other cryptocurrencies; engaging with citizens and holding officials accountable; stimulating America’s innovation economy; and retooling government services.
While each of these issues is important, Tapscott noted that blockchain technology, in particular, serves as a critical foundational layer. For example, he explained that the COVID-19 pandemic has shown that traditional supply chains are inadequate and as a result, the BRI report suggests, that they should leverage blockchain-based networks capable of providing multi-party trust and transparency.
For instance, the COVID-19 vaccination rollout is referenced in the document, which noted that greater speed and efficiency may very well be possible with a blockchain network:
“With blockchain technologies, it is no longer an impossible mission in mass coordination. U.S. digital leadership, a service mindset with compliance coded into every point of the supply chain process, and a clear map of the service journey could have the American economy on the road to recovery.”
This idea is already being administered in various parts of the world. For example, a United Kingdom-based digital asset tracking provider known as Everyware has been working with the U.K.’s National Health Service on a blockchain system to manage its COVID-19 vaccine storage. Brazil is also looking to leverage blockchain to track those who have received COVID-19 vaccinations.
While impressive, the report suggests that the former Trump administration only made minimal progress in terms of modernization and digitization, stating:
“Most agencies continue to struggle with an abundance of legacy technologies, legacy business processes, and even legacy governance and resourcing processes, each with attendant cybersecurity and cost effectiveness issues.
As a consequence, many agencies cannot fully meet citizen expectations for secure government services.”
Despite this, Tapscott remains hopeful that the new Biden–Harris administration will play a crucial role in ensuring that technology will act in the best interest of U.S. citizens. That being said, the report also emphasizes the importance of self-sovereign digital identity.
According to the document, data has become the new asset class of the digital age, however, while citizens generate data, tech conglomerates are exploiting this information daily. While Facebook is one of the most well-known examples of a company exploiting user data, privacy apps, such as Telegram, have also recently suffered from data leaks.
The report states that every citizen needs a self-sovereign digital identity, noting that the United States should be the first country where citizens truly own their data: “The government should encourage the numerous efforts underway that use blockchain in protecting identity and utilizing user data confidentially.”
The Race Toward A “Digital Dollar”
A central bank digital currency is also mentioned as a priority for the U.S. government to consider. As China quickly works to become the world’s first major economy to implement a CBDC, the report notes that China’s foreign trading partners are already moving to the renminbi as a reserve currency.
Unfortunately, many U.S. government officials remain unaware of the benefits associated with crypto, which may result in the slow implementation of a U.S. government-backed digital currency. J. Christopher Giancarlo, former chairman of the Commodities Futures Trading Commission, told Cointelegraph that a key focus of his professional attention since leaving public office has been on a U.S. central bank digital currency, or what he refers to as a “digital dollar.”
According to Giancarlo, increasing financial inclusion is one of the many reasons why the U.S. should prioritize CBDC experimentation. He explained that a U.S. CBDC can serve as an on-ramp to financial inclusion for populations that have historically been underserved by traditional banking services:
“Along with smartphone wallet services, a digital dollar could be the starting point for new services provided to underbanked populations. It could support important services, such as government-sanctioned digital IDs, alternative credit-scoring tools, savings programs, robo-advising and financial education services. A U.S. CBDC could also be a useful tool in the distribution of government assistance payments, such as social security benefits and food stamps.”
Additionally, Giancarlo pointed out that the COVID-19 crisis revealed fundamental shortcomings in the capacity of existing government systems to swiftly channel financial resources to the non-banked public. “Had a U.S. CBDC been in circulation during the COVID-19 crisis, it would have enabled the sending of monetary relief instantaneously to the digital wallets of targeted beneficiaries,” he explained.
Will The Dream Become A Reality?
While the BRI report presents a valid argument, it remains questionable if the digital priorities outlined can actually be implemented under the new Biden–Harris administration.
Fortunately, a number of “crypto-friendly” officials have been sworn into office under the Biden–Harris administration. For example, Janet Yellen, the U.S. Treasury Secretary, has expressed the need for legitimate use cases of cryptocurrency and decentralized finance. Yellen has also warned about the misuse of cryptocurrencies, urging the U.S. government to combat these issues.
President Joe Biden has also nominated Gary Gensler, a professor at the Massachusetts Institute of Technology Sloan School of Management, to lead the Securities and Exchange Commission. It’s been stated that Gensler has focused much of his attention on blockchain technology, digital currencies, financial technology and public policy as a professor at MIT.
Tapscott shared that the BRI report has already been sent to a number of U.S. government officials and regulators. While he is aware that some opposition may be faced, he remains confident that the document will serve as an overall helpful guide for lawmakers:
“Now is the time for governments to make a turn. In this report, we focus on new administration in D.C., but the information is relevant to countries everywhere. There is a big pressure now for profound change, as our systems and institutions have shown weakness exposed by the pandemic.”
Gensler Sticks Up For Bitcoin Before Congress, But Doesn’t Say Much New
The Senate held its first hearing on Gary Gensler’s nomination to chair the SEC today.
Today, the Senate Banking Committee held its first hearing on the nomination of Gary Gensler to chair the Securities and Exchange Commission. The role will have major influence on the future of crypto regulation, as the SEC has been a chokepoint for major areas like the status of initial coin offerings, approval of new exchange-traded funds, and crypto firms going public.
In his appearance before the committee, however, Gensler was evasive about any specific changes he would make to the SEC’s crypto policy. He supported prior decisions, like Bitcoin’s (BTC) exclusion from the SEC’s purview, but dodged any real commitment to any changed ICO policy.
“Bitcoin and other cryptocurrencies have brought new thinking to financial planning and investor inclusion,” said Gensler. “I’d work with fellow commissions both to promote the new innovation but also, at the core, ensure investor protection. If something were a security, for instance, it comes under security regulation, under the SEC.”
In logical terms, promising treating securities as securities is pretty tautological. The determination of which crypto assets qualify as securities and, specifically, investment contracts has largely depended on isolated or oblique commentary from SEC staff over the years.
The SEC has also released a trio of no-action letters that have been subject to extensive analysis from the crypto world. The agency has also engaged in several enforcement actions that have, depending on your perspective, tamed or ravaged the ICO market.
Sen. Cynthia Lummis, a known advocate for cryptocurrency, noted that the SEC has “a reputation as a black hole for innovators,” especially when it comes to digital assets. “I do think that technology markets constantly change and evolve and it’s important for the SEC to provide clarity,” adding, “It’s important to provide that whether through guidance or no-action letters.”
Despite Gensler’s fairly noncommittal statements in today’s hearing, the crypto industry has high hopes for his role, especially given his work teaching courses on blockchain at the Massachusetts Institute of Technology in recent years.
The members of the Banking Committee broadly showed bipartisan support for Gensler’s nomination. Several of the Republicans on the committee took the opportunity to oppose plans to expanded requirements for public companies to disclose environmental impact, which Gensler supports, but there’s little reason to believe that net resistance is enough to stop Gensler’s confirmation to become the chairman of the SEC.
US Lawmakers Introduce Bill To Clarify Crypto Regulations
The proposed bill would create a working group to evaluate U.S. cryptocurrency regulations with input from the SEC and CFTC.
Congress may soon try to clarify digital asset regulation in the U.S.
Reps. Patrick McHenry (R-N.C.) and Stephen Lynch (D-Mass.) introduced legislation Tuesday to create a working group composed of industry experts and representatives from the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to evaluate the current legal and regulatory framework around digital assets in the U.S.
The three other co-sponsors of the bill are Glenn Thompson (R-Pa.), Ted Budd (R-N.C.) and Warren Davidson (R-Ohio).
The ultimate goal of the legislation, called the “Eliminate Barriers to Innovation Act of 2021,” would be to clarify when the SEC has jurisdiction over a particular token or cryptocurrency (i.e., when it is a security) and when the CFTC has jurisdiction (i.e., when it’s a commodity).
U.S. regulations can often appear lacking, with no clear rules on when a certain cryptocurrency is treated as a security or not, with SEC enforcement actions providing much of the guidance in this area. SEC Commissioner Hester Peirce, who is outspoken on the issue, tried tackling it in 2020 by proposing a three-year safe harbor for projects to get off the ground.
Under the terms of the bill, Congress would create a working group within 90 days of the bill’s passage composed of SEC and CFTC representatives.
Non-governmental representatives would come from a financial technology company, a financial services institution, small businesses using financial technology, investor protection groups, organizations that support investments in underserved businesses and at least one academic researcher.
Within a year, this group would be required to file a report analyzing current regulations, the impact they have on primary and secondary markets and how the regime impacts the U.S.’ competitive position.
The report would also look at how custody, private key management and cybersecurity are currently treated under law, and what future best practices for fraud prevention, investor protection and other issues could look like.
The report would also include recommendations for improving primary and secondary digital asset markets, including their “fairness, orderliness, integrity, efficiency, transparency, availability and efficacy.”
Amy Davine Kim, chief policy officer at the Chamber of Digital Commerce, told CoinDesk the legislation aims to establish an organized, comprehensive regulatory framework for digital assets in the U.S.
“It brings together both the SEC and CFTC in a formal way, to work through some of the key issues that have impacted legal clarity in the space for years,” Kim said. “Now we have an opportunity to start addressing them in a methodical way with a number of stakeholders.”
The bill was originally supposed to be introduced Monday and considered under a voice vote by the full House of Representatives, indicating broad bipartisan support, according to Rep. Don Beyer (D-Va.), but was pulled due to procedural actions taken by the Freedom Caucus.
Biden’s 2022 Budget Includes New Crypto Reporting Proposals
Proposed cryptocurrency regulations are in the first budget released by Joe Biden’s White House.
President Joe Biden’s 2022 budget proposal includes several new crypto reporting requirements, according to a pair of documents published Friday.
The budget published Friday, the first from the Biden administration, includes two proposals that would give the Treasury Department additional requirements around what type of information financial institutions must report to the Internal Revenue Service (IRS) or other Treasury sub-departments.
The first proposal, mentioned in the White House budget itself, would “expand broker information reporting with respect to cryptocurrency assets.”
A Treasury Department “Green Book” provided more context, saying the proposed change would “expand the scope of information reporting by brokers” by allowing them to share information across different jurisdictions that have partnered with the U.S.
The Document States:
“The proposal would require brokers, including entities such as U.S. crypto asset exchanges and hosted wallet providers, to report information relating to certain passive entities and their substantial foreign owners when reporting with respect to crypto assets held by those entities in an account with the broker.”
Gross proceeds, sales and “substantial foreign owners” in passive entities would be included in these reports.
The proposal would take effect for returns filed after Dec. 31, 2022, according to the document.
“Tax evasion using crypto assets is a rapidly growing problem. Since the industry is entirely digital, taxpayers can transact with offshore crypto exchanges and wallet providers without leaving the United States,” the Treasury Department document said as an explanation for the proposal.
The 2022 budget includes several other crypto reporting requirements, according to the Treasury document.
The second proposal to introduce a “comprehensive financial account reporting” structure for tax compliance purposes, would require financial institutions to report data on user accounts with a breakdown on different types of transfers above a de minimis threshold of $600.
This would include crypto asset exchanges and custodians, the document said.
“Separately, reporting requirements would apply in cases in which taxpayers buy crypto assets from one broker and then transfer the crypto assets to another broker, and businesses that receive crypto assets in transactions with a fair market value of more than $10,000 would have to report such transactions,” the proposal said.
The budget comes just over a week after the Treasury Department proposed that financial institutions and other businesses which receive transfers of over $10,000 in crypto to report those to the IRS. The proposal is similar to a Financial Crimes Enforcement Network proposal as well.
Top White House Adviser Tim Wu Holds Millions In Bitcoin
White House antitrust adviser Tim Wu holds bitcoin and filecoin, according to a recent financial disclosure.
Tim Wu, one of the White House’s top technology advisers and anti-trust experts, currently holds millions in bitcoin and FIL, according to a report by Politico on Monday.
The report cites a personal financial disclosure that Wu recently filed and estimates he owns between $1 million and $5 million in bitcoin. The adviser also has between $100,001 and $250,000 in FIL, the native coin of the digital storage and data retrieval platform Filecoin.
U.S. President Joe Biden appointed Wu in March as special assistant for technology and competition policy at the National Economic Council. Before his term, he taught at Columbia Law School, though he has also had stints at the Federal Trade Commission and National Economic Council (in a different role) under former President Barack Obama.
Tim Wu, one of the White House’s top technology advisers and anti-trust experts, currently holds millions in bitcoin (BTC, and, according to a report by Politico on Monday.
The report cites a personal financial disclosure that Wu recently filed and estimates he owns between $1 million and $5 million in bitcoin. The adviser also has between $100,001 and $250,000 in FIL, the native coin of the digital storage and data retrieval platform Filecoin.
U.S. President Joe Biden appointed Wu in March as special assistant for technology and competition policy at the National Economic Council. Before his term, he taught at Columbia Law School, though he has also had stints at the Federal Trade Commission and National Economic Council (in a different role) under former President Barack Obama.
While posted as a top government official, Wu has recused himself from “any particular matters involving bitcoin or cryptocurrency” in general due to his financial interests, an anonymous official told Politico.
White House Is Set To Put Itself At Center Of U.S. Crypto Policy
* Biden Administration Said To Aim For February Executive Order
* Directive Would Call For Reports From Federal Agencies
The Biden administration is preparing to release an initial government-wide strategy for digital assets as soon as next month and task federal agencies with assessing the risks and opportunities that they pose, according to people familiar with the matter.
Senior administration officials have held multiple meetings on the plan, which is being drafted as an executive order, said the people. The directive, which would be presented to President Joe Biden in the coming weeks, puts the White House at the center of Washington’s efforts to deal with cryptocurrencies.
Federal agencies have taken a scatter-shot approach to digital assets over the past several years and Biden’s team is facing pressure to lead on the issue. Industry executives often bemoan what they say is a lack of clarity on U.S. rules and others worry that an embrace by China and other nations of government-backed coins could threaten the dollar’s dominance.
The White House declined to comment.
The Biden administration’s increased focus comes at a time of broad consumer interest in the volatile crypto market. Bitcoin, the biggest and most liquid cryptocurrency, fell below $37,000 on Friday, compared with an all-time high of nearly $69,000 in November.
The late-stage draft of the executive order details economic, regulatory and national security challenges posed by cryptocurrencies, said the people who asked not to be named discussing internal deliberations. It would call for reports from various agencies due in the second half of 2022.
One such study would come from the Financial Stability Oversight Council, a group that includes the heads of Washington’s top financial watchdogs, looking at the possible systemic impacts of digital assets. Another government report would look at illicit uses of the virtual coins.
Meanwhile, the directive would also require other agencies to weigh in — carving out roles for everyone from the State Department to the Commerce Department. Some of those tasks will be meant to ensure that the U.S. remains competitive as the world increasingly adopts digital assets.
The administration’s plan, including the directives in the order, could be further modified before it’s finalized, the people cautioned.
The administration is also expected to weigh in on the possibility of the U.S. issuing a government-backed coin, known as a central bank digital currency or CBDC, the people familiar with the talks said. But, according to one of the people, the administration is likely to hold off on taking a firm position, as the Federal Reserve is still considering the issue. On Thursday, the Fed released a preliminary paper on the matter and opened a public comment period through May 20.
A CBDC could be a way for the U.S. to stay competitive with the explosive growth of private cryptocurrencies and coins produced by other nations, including China. The Fed said it does not intend to move forward without the support of the White House and Congress.
Biden Expected To Issue Executive Order On Crypto And CBDCs Next Week
Both President Barack Obama and the previous administration issued executive orders related to digital assets.
The White House will reportedly be issuing an executive order as early as next week directing government agencies to study different aspects of the digital asset space with the goal of creating a comprehensive regulatory framework.
In a Thursday report from Yahoo! Finance, Jennifer Schonberger said an official familiar with the matter within the Biden administration revealed the executive order could arrive as soon as next week. The directive from President Biden would reportedly order the Office of the Attorney General, the State Department and the Treasury Department to study the potential rollout of a U.S.-issued central bank digital currency.
In addition, the director of the Office of Science and Technology Policy — the newly appointed Alondra Nelson — would provide an evaluation of the infrastructure needed for the U.S. to support a digital dollar.
The agency will reportedly plan to issue a report to the U.S. president on distributed ledger technology within 180 days, with an update expected on its environmental impact in 545 days.
Under the executive order, the Financial Stability Oversight Council would study financial stability issues resulting from the introduction of cryptocurrencies. The Securities and Exchange Commission, Commodity Futures Trading Commision, Federal Reserve, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency will consider measures to protect the markets and report to the president on methods to mitigate risks with respect to crypto.
The Consumer Financial Protection Bureau, Federal Trade Commission and Office of the Attorney General will study the impact of digital assets on market competition. The director and chair of the first two aforementioned agencies, respectively, will review privacy concerns for the space.
Altogether, the executive order — the 81st President Biden has signed since taking office in January 2021 — would reportedly be used to develop a comprehensive regulatory framework for digital assets in the United States. The previous administration issued 220 executive orders over four years, while President Barack Obama released 276 orders during his two terms.
Cryptocurrencies have been mentioned infrequently in executive orders during the history of the United States. The technology has only existed through the last three administrations.
In March 2018, Donald Trump issued an order banning U.S. residents from engaging in transactions of “any digital currency, digital coin, or digital token” released by Venezuela’s government, referring to the country’s Petro token. The former president also mentioned “digital currency fraud” in a July 2018 order establishing a task force tackling market integrity and consumer fraud.
Another order issued by President Obama in 2015 hinted that authorities would be able to confiscate digital assets connected to “significant malicious cyber-enabled activities.” The executive action essentially allowed officials to seize “funds or other assets” without “prior notice of a listing or determination” under the National Emergencies Act.
In March 2021, President Biden extended the order through April 2022. Since that time, the Justice Department and other government agencies have formed a task force to track and seize digital assets connected to illicit transactions.
National Security At Stake With Biden’s Crypto Executive Order
The U.S. administration has an opportunity to take the lead on the future of finance and the internet and restore American credibility in the world.
The White House reportedly will soon issue an executive order directing agencies across the federal government to conduct a risk analysis and, ultimately, a coordinated approach to digital assets as a matter of national security.
Digital assets like bitcoin (BTC) do introduce risks for immediate U.S. national security objectives that require federal agency action and coordination, but there are deeper, more significant national security opportunities that should drive the U.S. to support the continued growth of the digital asset ecosystem. We managed to strike this balance with internet commerce in the 1990s, and doing so with digital assets should be no different this time around.
National Security Risks
Just like other technology, digital assets are used to traffic drugs and launder money. Digital asset markets contend with fake trading volumes, wash trading, and pump and dump schemes as they mature.
Larger geopolitical forces are also at play: There is evidence that China manipulates the price of cryptocurrencies through its regulatory actions to gain a position of strength toward the implementation of the digital yuan as part of its Belt and Road Initiative.
North Korea steals cryptocurrency to fund its nuclear weapons program. The Putin Regime built Venezuela’s digital asset ecosystem as a test case to further their own goal of creating payment systems independent from Western financial infrastructure, and it will likely move beyond proof-of-concept in the long-term with U.S. sanctions coming online.
All of these pose risks to U.S. national security, and federal agencies need to have better tools to understand how digital assets operate and how to leverage their jurisdictional authority over digital asset markets globally.
National Security Opportunities
Digital assets also present an opportunity for national security. They can reduce the wealth gap by cutting global transaction costs. They allow people, globally and regardless of socioeconomic status, control over their own money.
They can transform international aid and development, foster trade and drive a new sector of small businesses in the U.S. They can reduce fraud and inflationary instability in global markets. And they can revolutionize the global financial system and fostering digital asset innovation will increase U.S. competitiveness in this new era of great power competition.
Russia’s invasion of Ukraine is a microcosm of these challenges and opportunities. While Russian oligarchs and sanctioned companies might use cryptocurrency to move value globally, Ukrainians have raised millions in crypto to support the defense of their country, and everyday folks on both sides – Ukranians and Russians – are using crypto to soften the financial blowback of the war.
In Short: It is in our national security interest to support the development of cryptocurrency.
The U.S. should foster responsible innovation and manage risk similar to how we have in the past. Twenty-five years ago, the Clinton administration built a policy framework for the internet much like the Biden administration will soon do for crypto.
The Clinton administration set out a crisp articulation of an open-innovation, market-first vision for the early days of the internet. The policy introduced five principles for the internet that are remarkably relevant to crypto today:
* “Innovation … broader participation and lower prices will arise in a market-driven arena.” If the administration focuses on a market-driven approach, in particular where there are partnerships between the private sector and public sector to manage risk and share best practices, innovation will thrive, and lower prices with broader financial participation will result.
* Government should avoid undue restrictions. “Government attempts to regulate are likely to be outmoded by the time they are finally enacted.” Risks presented by digital asset services are simply new twists on the same risks presented by other financial services. Digital asset businesses should be subject to the same rules as financial service businesses in other asset classes. Same service, same rules, same legal framework – no more, no less.
* Where government involvement is needed, the aim should be to support and enforce a predictable, minimalist, consistent and simple legal environment. While many cryptocurrency start-ups bristle at the thought of government regulation and may decry any attempt to regulate the space, even more want clear rules to access U.S. markets safely and compliantly. Contrasting regulations, particularly between federal and state law, need to be streamlined.
* “The genius and explosive success of the internet can be attributed in part to its decentralized nature and to its tradition of bottom-up governance. These same characteristics pose significant logistical and technological challenges to existing regulatory models, and governments should tailor their policies accordingly.” Decentralization and bottom-up governance are core tenets of crypto, and regulatory frameworks are now contending with complicated new digital assets and services, from decentralized exchanges to non-fungible tokens (NFT).
* Legal frameworks for e-commerce should be facilitated on a global basis. President Bill Clinton acknowledged that the internet is a global marketplace. Digital assets build on that theme by allowing individuals to transfer value globally in an instant.
These principles do not mean that federal agencies should not act to understand cryptocurrency, regulate the space and enforce laws. They should, and most of them already do. From the Securities and Exchange Commission to the Federal Bureau of Investigation to the Secret Service, they are all working to leverage their jurisdiction in the digital asset ecosystem and have key roles to play in protecting the integrity of U.S. financial infrastructure.
In 2018, I left the U.S. Air Force to start Inca Digital with the goal of bringing large financial institutions and government agencies into the crypto ecosystem. In addition to market surveillance, we collect intelligence on ransomware, hacker attacks and the distribution of blockchain nodes for banks and law enforcement agencies. We even work with the Department of Defense to track the use of cryptocurrencies in illicit supply chain activity and support counter-nuclear proliferation operations.
Ira Magaziner, a prime mover of U.S. internet policy, made an important remark when writing the Clinton policy: The internet “is also a force for the promotion of democracy, because dictatorship depends upon the control of the flow of information. The internet makes this control much more difficult in the short run and impossible in the long run.”
The Biden administration has a limited period of time, a unique opportunity to instantiate its core values of freedom and liberty in what will be a new global financial system. It will be playing into the hands of great power competitors like the People’s Republic of China and Vladimir Putin’s regime in Russia if digital asset innovation here is stifled.
It is no secret that China has already incorporated digital assets into its economic and national security policy to increase their competitiveness, kicking off a “horse race” China believes it can win.
To maintain U.S. national security, and America’s place in the global economy, we should look to what is fundamental to America: an open society with bold thinkers and entrepreneurs pushing the limits of the system with responsible technological innovation. That is what we did at the dawn of the internet age, and that is what we should do here.
Bitcoin Tops $42,000 As Biden Unveils ‘Benign’ Crypto Oversight While Putting Kibosh On The Gary Gensler Show
* Prospect Of Regulatory Clarity Could Be Good: Alpha Impact
* Privacy Coins Zcash, Monero Also Rallied In The Past 24 Hours
Bitcoin jumped above $42,000 amid a sharp rally in digital tokens, spurred by optimism about an impending U.S. overhaul of crypto oversight that Treasury Secretary Janet Yellen called “historic.”
The largest cryptocurrency rose as much as 10% to $42,427 on Wednesday morning in New York, its highest level since March 2. Ether climbed 8% while so-called privacy coins like Monero posted large gains. The crypto advance came as a broad risk-on rally embraced European stocks.
President Joe Biden will sign an executive order later on Wednesday which mandates government agencies to take a closer look at issues from developing a potential digital U.S. dollar to combating illicit finance.
The goal is to take advantage of the potential benefits of digital assets while also addressing the risks, the White House said in a fact sheet. Agencies will have from 60 to 180 days to complete their reports, a senior administration official said late Tuesday, after which the administration plans to move quickly to carry out the recommendations.
Yellen praised the order in a statement on the Treasury’s website on Tuesday that was later removed, saying it strikes the right balance between fostering innovation and addressing potential risks. That boosted sentiment in an industry that has long called for greater regulatory direction.
“For years, the crypto market has been hindered by a lack of regulatory clarity in the U.S.,” said Hayden Hughes, chief executive officer of trading social-media platform Alpha Impact, in a message Wednesday. “If clear guidelines are passed, this could be a watershed moment for the industry.”
Yellen said the department’s efforts under the executive order would complement work that’s already been done, including the report the President’s Working Group on Financial Markets put out last year on stablecoins.
In the since-removed statement dated March 9, Yellen said the approach outlined in the order “will support responsible innovation that could result in substantial benefits for the nation, consumers, and businesses.”
Even after Wednesday’s rally, Bitcoin remains within the range of $33,000 to $48,000 where it’s traded most of this year. After diverging from stocks early last week, cryptocurrencies gave up most of those gains as the war in Ukraine escalated, pouring cold water on the argument that they’re a safe haven in times of geopolitical turmoil.
“The order seems relatively benign, hence giving the market some clarity,” said Marcus Sotiriou, analyst at digital asset broker GlobalBlock, in a note on Wednesday. “As many investors had prepared for the downside risks of this event by waiting on the sidelines, we are seeing many buy Bitcoin back in what appears to be a spot-driven rally.”
Privacy coins — so called for the higher degree of anonymity they afford users — were some of the biggest winners over the past 24 hours, with Monero jumping 21% and Zcash up 17%, based on CoinGecko data. The gains were driven by speculation that they may get payment traffic displaced by the sanctions on Russia.
“The recent surge in privacy coins is mostly driven by traders speculating on the possibility that we will see capital flight” into them, said Ben Caselin, head of research and strategy at crypto exchange AAX, in a message Wednesday.
While privacy coins allow for a higher degree of anonymity, the networks they live on are less decentralized and less secure than Bitcoin, and limited in market cap, he said. “Rather than a new trend, current uptake is likely to be limited, with more volatility ahead.”
Bitcoin Price Surges On Biden’s Crypto Executive Order
Cryptocurrency advocates celebrate order while skeptics see it as a step back for regulation.
Bitcoin’s price surged on President Biden’s executive order to study digital currencies, a move the industry welcomed and skeptics decried as delaying needed regulation.
The order, titled “Ensuring Responsible Development of Digital Assets,” directed agencies across the federal government to produce reports on digital currencies and consider new regulations. It outlined the risks cryptocurrencies pose to the economy, national security and climate, while also noting their possible benefits.
It also asked agencies to review the possibility of issuing a digital version of the dollar, tasking the Justice Department with assessing whether it would require new legislation and possibly preparing such legislation. Some central banks around the world have experimented with the concept to keep pace with private-sector payments innovations, and the Federal Reserve has already started to evaluate the possibility.
As details from the executive order leaked overnight, the price of bitcoin, the largest cryptocurrency, rose almost 9%. Bitcoin’s price was $41,910 Wednesday evening, according to CoinDesk.
While financial regulators have long taken a cautious view toward cryptocurrency, the executive order marked the first time the White House had weighed in formally.
Crypto advocates welcomed the absence of any imminent federal action in the order and its acknowledgment of the positive elements of the industry, such as fostering innovation and financial inclusion.
“We applaud the White House for recognizing this as a defining moment for U.S. innovation on the world stage,” said Faryar Shirzad, chief policy officer at the largest U.S. crypto exchange, Coinbase Global Inc., in a series of tweets.
“We look forward to continuing our work with regulators and lawmakers,” he said.
The chief executive of Valkyrie Funds, Leah Wald, said she expects the order will lead to regulations that will further help the industry grow. “Clarity spurs adoption, and adoption leads to growth,” she said. Her firm sells crypto-focused exchange-traded funds.
The crypto industry has waged an intense lobbying campaign over the past year to stave off more aggressive regulation of digital assets. A report this week by Public Citizen, a progressive advocacy group, said the number of cryptocurrency lobbyists nearly tripled in recent years, from 115 in 2018 to 320 in 2021. The sector’s lobbying expenditures rose to $9 million from $2.2 million.
Crypto skeptics see the executive order as a step back.
Lee Reiners, executive director of Duke University School of Law’s Global Financial Markets Center, said it appears likely to delay any consequential policy decisions until after the midterm elections in November. In most cases, the White House is giving agencies at least 180 days to produce their reports.
“Leading up to this executive order, the narrative that had been circulating was that the administration was set to crack down on crypto,” Mr. Reiners said.
“This executive order is a complete 180 from that,” he said. “This is as close to an embrace of crypto as you could have hoped for from this Biden administration, if you’re pro-crypto.”
Financial regulators have already been studying cryptocurrencies for years. The Treasury Department’s Financial Crimes Enforcement Network issued guidance in 2014 around cryptocurrency-payment systems. The Securities and Exchange Commission has taken scores of enforcement actions against individuals and entities in the sector, while the Commodity Futures Trading Commission set up an initiative to study cryptocurrency and other technological innovations in 2017.
A senior administration official noted that the White House held a number of “Crypto Sunday” events to gather feedback from stakeholders as it prepared the executive order. A White House spokeswoman didn’t immediately respond to questions about the events, such as how many were held or who participated.
SEC Chair Gary Gensler has said that many cryptocurrencies should be regulated as securities such as stocks and bonds, something that would involve strict disclosure requirements from issuers. Crypto firms have pushed for CFTC oversight, believing it would be easier to comply with.
Matt Kluchenek, a partner at law firm Mayer Brown LLP, said Mr. Biden’s executive order appears unlikely to resolve such questions.
“Rather than provide direction with respect to who regulates what, the order calls for research, assessment and coordination within specified deadlines,” Mr. Kluchenek said. “Many market participants were hoping for more concrete direction.”
Industry lobbyists say that heavy-handed regulation would risk pushing more of the cryptocurrency market overseas. Some law-enforcement and national-security officials are reluctant to discourage use of cryptocurrencies such as bitcoin, saying they allow transactions to be traced more easily than cash.
“Ensuring that the U.S. remains the leader in global financial infrastructure for generations to come has never been more paramount for economic and national security interests,” said Sigal Mandelker, a former Treasury official in the Trump administration who is now a general partner at Ribbit Capital, a venture-capital firm invested in crypto. “The president’s recognition of that is an essential step in that direction.”
But investor advocates worry that the executive order will give an opportunity to dilute existing regulations.
“Silicon Valley and their army of new lobbyists may have feared the worst, and instead the White House is rolling out the welcome mat,” said Tyler Gellasch, executive director of the Healthy Markets Association, an investor trade group. “Politicians and lobbyists are likely to use this as an opening line to try to rewrite the securities, commodities and banking laws under the guise of better regulating crypto.”
Janet Yellen Let Slip Details Of Biden‘S Executive Order On Crypto
The Treasury’s statement came a day early and was removed from the site, but not before the details of how Secretary Yellen plans to respond to President Biden‘s forthcoming order.
A statement from United States Treasury Secretary Janet Yellen on President Joe Biden’s executive order regarding digital assets calls for efforts to support innovation while addressing risk in the industry.
Yellen’s statement was released a day early, apparently by error, and quickly deleted but was captured on a web archive. It shares early insights into the details of President Biden’s soon-to-be-released executive order. The order will call for “a coordinated and comprehensive approach to digital asset policy.”
Yellen’s statement said that the executive order could “result in substantial benefits for the nation, consumers, and businesses.”
“It will also address risks related to illicit finance, protecting consumers and investors, and preventing threats to the financial system and broader economy.”
Yellen also outlined the next step the Treasury Department will take in learning to understand digital assets and how to regulate them within the parameters of the executive order.
President Biden’s White House has been working on an executive order related to digital assets since January. An unnamed source told Barron’s said will help “give coherency to what the government is trying to do in this space.”
— Matt Corallo (@TheBlueMatt) March 9, 2022
To assist the Treasury in its efforts, other agencies will collaborate to create a report “on the future of money and payment systems.” This will be done with input from international actors in order to “promote robust standards and a level playing field.”
Treasury will also convene the Financial Stability Oversight Council to determine if “appropriate safeguards” exist. These efforts will be added to the ongoing work that Yellen said her department has already undertaken with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) regarding stablecoins.
The statement suggested that the executive order will have global implications, as “we will work with our international partners to promote robust standards and a level playing field.”
Yellen also said that Treasury will continue to work with investor protection groups and various experts, and that:
“Treasury will work to promote a fairer, more inclusive, and more efficient financial system, while building on our ongoing work to counter illicit finance, and prevent risks to financial stability and national security.”
There has been a mixed reaction so far from prominent members of the crypto community. Founder of Week In Ethereum Evan Van Ness called the statement a “nothingburger of a statement.”
But Altered State Machine (ASM) founder Aaron McDonald shared somewhat more grave feelings about the statement. He tweeted that Yellen’s sentiments show she is looking for a way to “Make sure we maintain the most powerful weapon in our military. USD as global settlement.”
I read the “Yellen Leaks” as the following
1. Make sure we maintain the most powerful weapon in our military. USD as global settlement. (AML etc all fits in this box as this is how sanctions work and how you derive soft power)
2. Make sure we can TAX this shit.
— Aaron McDonald (@aaronmcdnz) March 9, 2022
Biden To Sign Executive Order On Crypto, Authorize All-Government Effort To Consolidate Regulation
The document does not announce any restrictive measures, but it will undoubtedly lay the groundwork for a more focused federal oversight.
Later today, U.S. President Joe Biden will sign a long-anticipated executive order on digital assets. Despite fears that the order may resound a regulatory clampdown on the industry, the language of the document is fairly favorable, the key focus being the coordination and consolidation of various agencies’ efforts within a unified national policy.
The order designates six key areas of the federal government’s involvement with the digital asset ecosystem — consumer and investor protection, financial stability, financial inclusion, responsible innovation, the United States’ global financial leadership and combating illicit financial activity — and directs specific agencies to lead in designated policy and enforcement domains.
The Department of the Treasury will take the lead in developing policy recommendations for mitigating both systemic and consumer risks associated with digital assets.
The Financial Stability and Oversight Council is directed to assess global and domestic risks and highlight policy gaps that are should be closed. Matters of national security and combatting illicit finance will become a whole-of-government concern, with all relevant agencies “directing unprecedented focus of coordinated action” on crypto-related risks.
In addition to addressing risks, Biden’s executive order makes a nod to digital assets’ potential to expand the accessibility of financial services and contribute to maintaining the United States’ global financial leadership. Specifically, it directs the Department of Commerce to devise a framework ensuring that the U.S. is competitive in the digital asset space.
The order also directs the Treasury to produce a report on the “future of money and payment systems” and encourages the Federal Reserve to ramp up research and development of a potential U.S. central bank digital currency, or CBDC.
The executive order comes amid the U.S. government’s heightened concerns over the possibility of Russia using cryptocurrency to dodge Western sanctions in the wake of its military actions in Ukraine. Semi-informed speculations regarding the contents of the document began to circulate one day before its actual publication as Treasury Secretary Janet Yellen’s statement on the order went public prematurely, apparently by error.
Biden Issues Long-Awaited US Executive Order On Crypto
Federal agencies will evaluate their approach in six “key priorities” within the digital asset sector.
* U.S. President Joe Biden signed a first-of-its-kind executive order on cryptocurrencies on Wednesday, directing federal agencies to coordinate their approach to the sector.
* The executive order does not lay out specific positions the administration wants agencies to adopt, or impose new regulations on the sector.
* One part of the order will direct the Treasury Department to create a report on the “future of money,” including how the current financial system might not meet consumer needs.
U.S. President Joe Biden directed federal agencies to coordinate their efforts at drafting cryptocurrency regulations in a first-of-its-kind executive order on Wednesday.
The “whole-of-government” effort to regulate the crypto industry focuses on consumer protection, financial stability, illicit uses, leadership in the global financial sector, financial inclusion and responsible innovation, according to a fact sheet accompanying the order.
The executive order, the first such to focus exclusively on the growing digital asset sector, directs federal agencies to better communicate their work in the digital asset sector, but it does not lay out specific positions the administration wants agencies to adopt.
Similarly, the order did not announce any new regulations for which cryptocurrency companies to abide.
A senior administration official struck a neutral tone on digital assets by telling reporters the growth of the cryptocurrency sector could threaten the U.S. financial system, national security or business stability. Without “sufficient oversight,” criminals can use cryptocurrencies to launder funds or evade sanctions.
“At the same time, however, digital assets can also provide opportunities for American innovation and competitiveness and promote financial inclusion,” the official said. “Innovation is central to America’s story and our economy, generating jobs and opportunities, creating and building new industries, and sustaining our global competitive edge and leadership.”
Wednesday’s executive order, which was originally reported to be in the works in October 2021, will define six “key priorities” for the administration: protecting U.S. interests, protecting global financial stability, preventing illicit uses, promoting “responsible innovation,” financial inclusion and U.S. leadership, according to a fact sheet shared with reporters.
Roughly 40 million Americans, or 16% of the total U.S. population, have reportedly invested in or are trading in cryptocurrencies, according to the official.
Crypto’s volatility was cited as one issue that could harm investors by an administration official, who pointed out that bitcoin’s (BTC) price at the beginning of the COVID-19 pandemic was around $10,300. The price peaked close to $70,000 in November before falling again in the fall of 2021 and start of 2022.
Bitcoin’s price surged more than $3,000 (close to 8%) on Tuesday after a Treasury Department statement on the executive order was seemingly inadvertently published.
“The President has put forward a holistic whole-of-government approach to understanding not only the macroeconomic risks, but also microeconomic, with the risk to each individual, investor and business that engages with these assets,” the official said.
Investor protection is then a chief goal, the official said. Part of this effort will include understanding the technology underpinning digital assets. Another part will include understanding the weaknesses in the current financial system and which areas do not currently serve all consumers.
“[The order] recognizes that our assessment of the risks and potential benefits of digital assets must include an understanding of how our financial system does and does not meet the current needs of consumers in a manner that is equitable, inclusive and efficient,” the official said.
Consumers might face an “antiquated payment infrastructure,” which would be slow or unserviceable. The official said this was “especially true” of cross-border payments.
‘Future Of Money’
Part of the order directs the U.S. Treasury Department to draft a report on “the future of money and payment systems,” according to a fact sheet.
The interagency report will analyze cryptocurrencies’ impact on economic and financial growth, financial inclusion, national security and “the extent to which technological innovation may influence that future.” The report should also answer the earlier question of how the current financial system does or does not meet consumer needs.
In a statement originally published (and later removed) on Tuesday night, Treasury Secretary Janet Yellen said the report will complement the Treasury Department’s existing efforts to analyze the cryptocurrency sector.
“Already, the Department has worked with the President’s Working Group on Financial Markets, the FDIC [Federal Deposit Insurance Corporation], and OCC [the Office of the Comptroller of the Currency] to study one particular kind of digital asset – stablecoins – and to make recommendations,” Yellen said. “Under the executive order, Treasury and interagency partners will build upon the recently published National Risk Assessments, which identify key illicit financing risks associated with digital assets.”
The President’s Working Group report, published in November, called on Congress to pass a law more clearly defining federal bank regulators’ oversight authority over stablecoins, but said the Financial Stability Oversight Council (FSOC) could take action in lieu of legislation.
Yellen referenced FSOC’s role in her statement, saying the financial stability watchdog would look at any potential risks posed by the cryptocurrency sector “and assess whether appropriate safeguards” already exist.
“Because the questions raised by digital assets often have important cross-border dimensions, we’ll work with our international partners to promote robust standards and a level playing field,” she said.
Another senior administration official said the executive order will organize these previous or ongoing efforts, bolstering Treasury’s efforts with input from national security and economic advisers at the White House.
The executive order will also ask agencies to evaluate how the U.S. could issue a central bank digital currency, “should issuance be deemed in the national interest.”
In this, the order ties in to the Federal Reserve’s ongoing efforts to study digital dollar issuance. Branches of the central bank have published multiple reports in recent months evaluating both the policy and technological questions that must be answered before a central bank digital currency (CBDC) can be issued.
More than 100 countries are already looking into CBDCs, the administration official said, with use cases encompassing both domestic transactions as well as international usage.
“Many of these countries are also working together to set standards for CBDC design and cross-border systems,” the official said. “With implications for domestic and international priorities, including the centrality of the U.S. dollar in the global financial system, the [executive order] will help make sure we have a leadership role and a seat at the table.”
The official said the U.S., when it held the Group of 7 presidency, established a digital payments experts group to evaluate CBDCs, as well as stablecoins and “other digital payments issues.”
Biden’s executive order will ask the Fed, as well as any other relevant agencies or departments within the federal government, to look at the possible risks of a CBDC in addition to the possible benefits.
Implications to national security, human rights and financial inclusion are other factors that these agencies will have to consider in answering the question of whether issuing a CBDC is in the national interest.
The privacy of the dollar remains a key issue.
National Security, International Cooperation
The executive order has long been rumored to have a focus on national security. The fact sheet detailing the order mentions national security a handful of times, while an administration official said the administration has already begun work on addressing these concerns.
The U.S. Department of Justice and Federal Bureau of Investigation (FBI) each have their own relatively young units focused on crimes committed with, or using, cryptocurrencies.
“The insufficiency of international implementation of anti-money laundering networks and frameworks with digital assets is the greatest vulnerability of these ecosystems that criminals are currently exploiting,” the official said.
Part of this stems from the fact that cryptocurrency networks were not designed with tools like identity screening or the ability to block transactions implemented, the official said.
Indeed, most cryptocurrency networks are arguably designed to limit identification and be more decentralized. To address this, the executive order “represents a continuation” of the U.S. working to set both financial and technological standards abroad, the official said.
“We remain committed to working with allies in the broader digital asset community to shape the future of digital assets systems in a manner that’s inclusive, consistent with our democratic values and safeguard the integrity of the global financial system,” the official said.
The fact sheet described this as “promoting U.S. leadership in technology and economic competitiveness.”
The U.S. Commerce Department will be directed to create a framework to address these concerns, the fact sheet said, and to ensure that the U.S. remains a leader in using digital asset technologies.
Other agencies should be able to take advantage of this framework for their own policy or operational approaches to crypto.
Bitcoin Tops $41K After Yellen’s Crypto Statement Inadvertently Published Early
Gemini’s Cameron Winklevoss said that based on Yellen’s remarks the impending crypto order is positive and supports responsible innovation.
Bitcoin (BTC) rallied early on Wednesday, pushing the broader crypto market higher after U.S. Treasury Secretary Janet Yellen’s inadvertently published remarks revealed President Joe Biden’s impending crypto order would take a constructive approach in regulating the digital asset industry.
* “A presidential executive order on cryptocurrencies would ‘support responsible innovation’ as it coordinates U.S. policy across agencies,” Yellen said in the statement, which was accidentally published, and then unpublished, late Tuesday before being officially published Wednesday.
* “Under the executive order, Treasury will partner with interagency colleagues to produce a report on the future of money and payment systems,” Yellen added.
* Bitcoin (BTC) picked up a bid and rose nearly 7% to $41,900 after CoinDesk reported Yellen’s comments, soothing market nerves. Other prominent cryptocurrencies including ETH, SOL, LUNA followed suit, according to CoinDesk data.
* “Based on remarks, crypto [executive order] is positive and calls for coordinated and comprehensive approach to digital asset policy that will support responsible innovation,” Gemini Trust’s Cameron Winklevoss tweeted.
* “I applaud this constructive approach to thoughtful crypto regulation and look forward to working together with the various stakeholders to ensure that the U.S. remains a leader in crypto,” Winklevoss added.
* The White House’s long-awaited executive order directed at cryptocurrencies has recently attracted strong attention, thanks to speculation wealthy Russians could be using bitcoin and dollar-pegged stablecoins to bypass economic sanctions levied by the West. As such, several analysts have been worried the Biden administration would take a hard stance on the evolving crypto sector.
* While Yellen’s comments have revealed a balanced approach, concerns about crypto’s use for illicit financing persist. “The executive order will address risks related to illicit finance, protecting consumers and investors, and preventing threats to the financial system and broader economy,” Yellen’s now-deleted statement said.
* The statement, dated March 9, was posted on the Treasury Department’s website on Tuesday night and was taken down shortly after it was published.
Crypto Executive Order ‘Short on Clarity’ Hailed by Sector
* Bitcoin Rallies More Than 10% Amid Risk Assets Rebound
* Circle Founder Allaire Calls The Order A ‘Watershed Moment’
The Biden administration’s long-awaited executive order for government agencies to take a closer look at issues surrounding the crypto market is being celebrated by industry participants despite it lacking a clear path on possible regulation.
“The executive order is quite vague. They still talk a lot about the need to keep restrictions on this asset class,” said Matt Maley, chief market strategist at Miller Tabak + Co., said. “However, it is still the kind of signal that the Washington, D.C., establishment is becoming more comfortable with cryptos and that is bullish.”
Bitcoin rallied as much as 11% on Wednesday. Ether, the second-largest token, gained more than 8%, while so-called altcoins also rallied. The advance is in line with other risk assets, like stocks, which have been under pressure amid the fallout from Russia’s invasion of Ukraine.
Antoni Trenchev, co-founder of crypto platform Nexo, cautioned investors to “expect further volatility as we seek clarity from the regulatory haze and the ripple effects from Ukraine continue to felt across the world.”
Nonetheless, others are claiming the executive order as a victory for the sector. Grayscale Chief Legal Officer Craig Salm, called the directive “incredibly positive” during an interview.
Here’s what else market participants are saying:
Jeremy Allaire, Co-founder, Chief Executive Officer, And Chairman of Circle:
“The Biden Administration’s Executive Order on digital assets represents a watershed moment for crypto and Web3, akin to when the government in the 90s realized the commercial power of the internet. The U.S. government now has a whole-of-government approach for supporting the open, internet-native economic infrastructure ushered in by new Web3 technologies, bringing the country a step closer to ensuring the U.S. dollar remains the currency of the internet and that the U.S. remains the home of principled innovation and competition.”
Trenchev of crypto platform Nexo:
“Although President Biden’s executive order leaves us short of clarity on the regulatory pathway, it’s clear his administration believes that staying out of crypto will be to the nation’s detriment, akin to missing out on building out the infrastructure of the internet in the early 1990s. The US doesn’t want to be left behind as other countries look at ways to oversee the crypto industry.”
Barbara Matthews, Founder And Chief Executive Officer of BCMStrategy Inc.:
“As we expected last week, significant shifts in the center of gravity regarding crypto mining require US authorities to take a nuanced approach to cryptocurrency regulation. Increased direct competition with Russia on mining and obvious incentives to crack down on potential back door evasion of financial sanctions are being balanced against a growing US mining presence and a deep commitment by US banks and the Federal Reserve to stablecoin initiatives. Globally, the significant efforts underway to by central banks to compete with cryptocurrencies through sovereign-issued digital currencies is under-appreciated.”
Leah Wald, CEO At Valkyrie Funds, An Asset Manager Focused On Digital Assets:
“This executive order arrived largely as expected, in regards to tasking agencies with rule making and the establishment of guidelines around our industry. We welcome this development and fully believe that regulatory clarity will lead to a significant growth of adoption across blockchain projects and digital assets. Further encouraging is that the government is now actively looking to establish a digital dollar, which will absolutely be necessary for our economy to compete on a global stage with countries like China that already have CBDCs. Development of a digital dollar will also likely be vastly helpful in helping our government learn more about our industry, and we encourage them to engage with leaders in the space for guidance and advice on how to bring the project to market.”
Hany Rashwan, CEO And Co-Founder Of 21Shares, A Crypto ETPs Provider:
“At 21Shares, we’ve always believed that the best way to introduce and expose investors to crypto is through a safe and regulated approach. Today’s executive order is a significant step for U.S. investors looking to capitalize on the most lucrative asset class of the last decade, and we believe for the next decade to come.”
Meltem Demirors, Chief Strategy Officer At Crypto Fund-Provider Coinshares:
“It’s the same song and dance in Washington D.C., which is, let’s study it. The executive order was full of statements that were leading statements that were factually questionable and made certain implications about how cryptocurrencies are being used, about the purported environmental impacts. So I think it’s very clear what the bias of the administration is, but we’ll see what comes out of it,” she said. “At the end of the day, the order can only address the departments of the administration that are under the purview of the president. The SEC and CFTC are independent agencies — and therefore only mentioned a handful of times in the order as entities to be consulted — but these two regulatory bodies will likely be most important in defining the regulations that shape the future of crypto markets.”
FTX’s Sam Bankman-Fried:
“We applaud the Biden administration for recognizing the growing importance of the digital-asset space and believe today’s executive order is a significant step forward in building a strong regulated environment in the U.S. Innovation will always need to be coupled with safeguards and protections.”
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