On Wednesday, March 9, 2022, President Biden signed an Executive Order “Ensuring Responsible Development of Digital Assets” (the “Order”). This widely anticipated Order came as a pleasant surprise for both proponents and opponents of cryptocurrencies alike. For fans and followers of established digital currencies like Bitcoin and rising digital assets such as NFTs, the Order marks a positive shift in attitude on Capitol Hill. For critics of crypto, the Order is a good sign that the U.S. Government seeks to regulate a notoriously volatile space.
The Order Aims to Appease Both Cryptocurrency Supporters and Critics
The Order does not directly impose concrete action or regulation on the crypto space, but instead directs various governmental agencies to begin investigating policies that will protect consumers, investors and businesses, and guard against the risks that have so long plagued the cryptocurrency community. The Order not only asks agencies such as the Department of Homeland Security to develop measures to prevent the misuse of cryptocurrencies by bad actors, but also directs the Department of Commerce to investigate ways to keep the United States competitive in digital currencies and assets.
For crypto supporters, the Order represents a serious change in outlook from Washington. Digital currencies such as Bitcoin have long been treated with general skepticism, if not outright disdain, by many of those in government, and measured regulation of the crypto space has languished in the halls of Congress. To many, the Order is a welcome sign that, for once, Capitol Hill sees digital currency and assets not merely as an eccentric hobby, but as the future. The Order recognizes that crypto is here to stay and that if the U.S. is to remain a leader in that space, steps need to be taken now to secure that future.
While the Order will not evaporate skepticism of crypto overnight, it offers a long-needed initiative that even the most ardent skeptic cannot help but give full-throated approval to. The Order instructs governmental agencies to begin developing systems to prevent the rampant misuse of cryptocurrency by bad actors, especially by foreign powers seeking to evade financial sanctions. While the Order was in the works long before the Russian invasion of Ukraine, its timing could not have been more fortuitous. With much of the Western world and its allies imposing crushing financial sanctions on the Russian economy, there is a fear that some sanctioned individuals in Russia could bypass the sanctions via cryptocurrency. This fear has been borne out previously with nations such as North Korea targeting cryptocurrency as a way to evade sanctions on its nuclear and ballistic missile programs. The Order’s initiative to prevent misuse is a common-sense first step to establishing crypto as a safe and reliable asset.
US Government Indicates Interest in Establishing Its Own Digital Currency
The most surprising element of the Order is an emphasis on the need for the U.S. government to research developing its own digital currency. The Central Bank Digital Currency (CBDC) has been explored previously by the Federal Reserve, though until now the analysis on such an offering has been ambivalent. The Order clearly indicates the belief that if the U.S. Dollar is to remain the world’s dominant reserve currency, a digital counterpart is needed. With the crypto market cap soaring to $3 trillion as recently as September 2021, it is easy to see why the Fed may be interested in stemming the flow of cash out of the traditional financial system and into crypto.
While the Order does not have a concrete impact on crypto yet, the regulations that it will initiate may change the way we use not just cryptocurrencies, but currency itself. At the very least, the White House has acknowledged that digital assets are here to stay.
KJK can assist in navigating the rapidly evolving crypto landscape and explaining what impact potential new regulation will have on you. For more information, contact Jon J. Pinney at (jjp@kjk.com; 216.736.7260) or reach out to any of our Corporate & Securities or Tax attorneys.