Biden urges action on regulating, issuing cryptocurrency

US President Joe Biden has signed an executive order addressing cryptocurrency, according to Bloomberg, as the digital asset ecosystem continues to grow exponentially.

Described as ‘historic’, the executive order urges government to examine and review the risks and benefits relating to cryptocurrencies, as the country looks towards leading regulation and innovation industry-wide and securing its own digital dollar.

Regulatory scandals and fears over Russia driving action

This action comes hot on the heels of various regulatory scandals that have hit headlines over the last year, due to cryptocurrencies, including Bitcoin and Ethereum, being largely unregulated. Crypto startups Coinbase and BlockFi have both been in trouble with the US Securities and Exchange Commission for violation of securities laws in terms of its retail lending product, the latter hit with a record US$50m fine.  

The order also arrives as fear looms about Russia using crypto to evade the crippling economic sanctions that have been imposed upon its banks, oligarchs and oil industry following its unlawful invasion of Ukraine.

As a counteract to such concerns, the approach outlined in the executive order would “reinforce US leadership in the global financial system and safeguard the long-term efficacy of critical national security tools like sanctions and anti-money laundering frameworks”, a statement by National Economic Director Brian Leese read.

Consumer protection, climate change and innovation are key priorities

Biden’s executive order, which is designed to help “guide the evolution of the digital asset ecosystem in a way that is consistent with our values”, states Leese, is expected to describe what federal agencies, including the Treasury Department, need to do to develop policies and regulations on digital currencies.

The order instructs them to study the impact of cryptocurrency on financial stability and national security and evaluate the economic and regulatory issues relating to digital assets, and further includes a request for the State Department to ensure that American cryptocurrency laws are aligned with those of the country’s allies.

The order lays out a national policy for digital assets across six key priorities:

• Consumer and investor protection
• Financial stability
• Illicit activity
• US competitiveness on a global stage
• Financial inclusion
• Responsible innovation

Protecting consumers from crypto scams is a key part of the directive, as is rooting out any illegal activity in the crypto space, including national security risks. Last month, US officials seized US$3.6bn worth of Bitcoin related to the 2016 hack of crypto exchange Bitfinex. A further key point is the energy costs of crypto mining, with instructions for government to study ways to make crypto innovation more “responsible” in its approach to climate change.

Technological innovation in cryptocurrency is a priority, as the US looks to position itself as a global leader on crypto. Biden has directed the Department of Commerce with establishing a framework to drive US competitiveness and leadership in and leveraging of digital asset technologies.

Finally, the order will explore the potential of a new central bank digital currency, evaluating the risks and benefits posed by the US introducing a digital dollar of its own. This directive comes in the wake of a report released last year by the Federal Reserve on the risks and benefits of virtual money.

Cryptocurrency adoption in the US

Data by Chainalysis shows that cryptocurrency adoption has skyrocketed in the last year, with worldwide adoption of cryptocurrency jumping 880% in 2021. Developing countries, like the US, which ranked eighth globally in crypto adoption in 2021, saw adoption driven largely by institutional investment.

And while grassroots cryptocurrency adoption by individuals is highest in emerging markets, decentralised finance (DeFi) – which is seeing explosive growth – is strongest in high-income countries which already have substantial cryptocurrency usage, especially among traders and institutional investors.

The US is currently ranked highest in the Global DeFi Adoption Index, thanks to its high raw volumes of cryptocurrency valued moved, both currently and historically.