Joe Knows Crypto?

On March 9th, President Biden signed his “Executive Order on Ensuring Responsible Development of Digital Assets.”  This order had been anticipated for several weeks, and while highly anticipated within the crypto community, the order itself is short on specifics, long on bureaucratic jargon, and therefore subject to speculation by almost anyone who takes the time to read it.

To start, it must first be acknowledged that nowhere in the order can there be found any glaring red flags for crypto in general, or investors in particular.  This is perhaps one of the reasons that the crypto market got a short lived pump on the day the order was issued.  While there are no glaring warning signs, there are items to take note of.  In particular:

• Section 1 ends with the following:  “We must take strong steps to reduce the risks that digital assets could pose to consumers, investors, and business protections; financial stability and financial system integrity; combating and preventing crime and illicit finance; national security; the ability to exercise human rights; financial inclusion and equity; and climate change and pollution.”
• Section 2 ends with the following:  “The United States has an interest in ensuring that digital asset technologies and the digital payments ecosystem are developed, designed, and implemented in a responsible manner that includes privacy and security in their architecture, integrates features and controls that defend against illicit exploitation, and reduces negative climate impacts and environmental pollution, as may result from some cryptocurrency mining.”
• Section 5 includes a call for a study that would examine the:  “potential uses of blockchain that could support monitoring or mitigating technologies to climate impacts, such as exchanging of liabilities for greenhouse gas emissions, water, and other natural or environmental assets.”

Environmental issues are scattered elsewhere in the document and so it is quite clear that issues tied to “proof of work” protocols (Bitcoin) and “proof of stake” protocols (almost everything else) is going to be a source of contention for some time.  

The next thing that stands out, is the number of people and agencies being called upon to take some sort of action within the digital asset space.  Specifically, these agencies are listed in Section 3, and includes:

1. The Assistant to the President for National Security Affairs (APNSA) 
2. The Assistant to the President for Economic Policy (APEP)
3. The Secretary of State
4. The Secretary of the Treasury
5. The Secretary of Defense 
6. The Attorney General 
7. The Secretary of Commerce 
8. The Secretary of Labor 
9. The Secretary of Energy 
10. The Secretary of Homeland Security 
11. Administrator of the Environmental Protection Agency 
12. The Director of the Office of Management and Budget
13. The Director of National Intelligence
14. The Director of the Domestic Policy Council
15. The Chair of the Council of Economic Adviser
16. The Director of the Office of Science and Technology Policy
17. The Administrator of the Office of Information and Regulatory Affairs
18. The Director of the National Science Foundation
19. The Administrator of the United States Agency for International Development
20. Representatives of other executive departments and agencies (agencies) and other senior officials may be invited to attend interagency meetings as appropriate, including, with due respect for their regulatory independence, representatives of the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau (CFPB), the Federal Trade Commission (FTC), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and other Federal regulatory agencies.

In trying to get context for the number of agencies being called upon to take certain actions by this particular order, we examined some of the most recent executive orders issued by this administration.  Issued in December of 2021, Biden’s EO “Transforming Federal Customer Experience and Service Delivery To Rebuild Trust in Government” was directed at essentially every department within the federal government.  Needless to say, the inter-agency scope of that order was massive, though this latest EO is not far behind.  

We point to the scope of this order so as to highlight the reality that crypto is now truly on the radar of the federal government.  While we have all known that for some time, this order does in many ways validate the crypto space as a whole.  That’s a positive.  The downside is that a whole host of governmental agencies have now been tasked with getting involved.   If these agencies can seek to provide clarity, that will be positive.  Should these agencies fall into the trap of creating bureaucratic booby traps, then the market will suffer.

One final note on the order’s content:   it is implied that the US still has a ways to go before being able to roll at a “CBDC” or Central Bank Digital Currency.  This seems somewhat odd, as it is widely known that government research along these lines has already been going at places like MIT.  Introducing a CBDC is no small enterprise, so perhaps this EO was something of a “heads up” to governmental agencies that it is in fact happening.  

While crypto at its core seeks to disrupt legacy financial systems, this executive action is an attempt to integrate crypto into the existing financial framework.  In many respects, this quite naturally implies that some sort of philosophical showdown is looming.  While this action could have been better, it could have been far worse, and so for now, we will take the win, knowing only too well that there is still a lot of work to do.