WASHINGTON — President Biden on Wednesday signed an executive order that directs the federal government to come up with a plan to regulate cryptocurrencies, acknowledging their popularity and potential to destabilize traditional currency and markets.
The order, which has been in the works for months, will coordinate the efforts of financial regulators to better understand the risks and opportunities presented by digital assets, particularly in the areas of consumer protection, national security and illicit finance.
The move, according to a fact sheet on the order released by the Biden administration, is a response to the “explosive growth” of digital assets, the growing number of countries exploring central bank digital currencies, and the desire to maintain American technological leadership. It directs financial regulators to continue the work that began in earnest last year, including studying and reporting on the creation of a digital dollar.
The findings could help shape the contours of an industry that is rapidly innovating and has spread rapidly, but which critics say enables illicit activity and creates outsized financial risks for both consumers and the economy. .
“The rise of digital assets creates an opportunity to strengthen American leadership in the global financial system and at the technology frontier, but also has substantial implications for consumer protection, financial stability, national security, and climate risk” , the White House said in a statement. .
The order sets out a national policy for digital assets in six areas: consumer and investor protection; financial stability; illicit financing; US leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.
Cryptocurrency experts have long called on the government to streamline what was a scattered approach.
“We need clear answers on how to do things,” said Louis Lehot, cryptocurrency expert at law firm Foley & Lardner, in an interview. “We operate in a gray area and in a sandbox. And time and time again someone walks into the sandbox and arrests someone, and that’s not the best way to develop a significant part of the economy.
He added: “We have seen a complete lack of strategic direction or thinking from the federal government for years. The industry still doesn’t know what a security is, for example, and what a regulatory-free utility token is. These are things that would help us.
There are fears that Moscow is using cryptocurrency to evade punitive sanctions issued by the US government following the Russian invasion of Ukraine. A senior administration official who detailed the contents of the executive order but was not authorized to speak about it publicly told reporters Tuesday night that work on it predated the war in Ukraine. Cryptocurrency would not be a viable way for Russia to circumvent sanctions, the official said.
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But the geopolitical situation exacerbates long-standing concerns about the role of anonymity in cryptocurrency and the resulting risk of illicit activity. The blockchain technology underlying cryptocurrencies gives anyone who can read computer code the ability to track transactions, seemingly eliminating the need for trust between transaction parties and allowing for anonymity.
Names and personally identifying information aren’t always necessary to participate in the crypto economy — on many decentralized platforms, programs, and apps, code runs the show. But as the crypto industry and its offerings swell, attracting more and more money for projects that defy traditional business definitions, ever larger amounts of digital assets are managed by major players – including venture capitalists and developers – who operate without sharing their names.
The extent to which regulators will attempt to change this will become more apparent after conducting the studies and writing the reports that the order directs.
David Yaffe-Bellany contributed report.