The Biden Crypto Regulatory Framework: Impacts on the Crypto Market
What impacts will this new executive order have on the cryptocurrency markets?
What is the new Biden Crypto Framework?
In September 2022, under a ‘whole of government’ Executive Order (E.O), according to the Biden Administration’s Order last March, the White House released a new framework for Bitcoin and other cryptocurrency development. The order, which many crypto experts tagged long overdue and a tremendous relief, saw the announcement of a regulatory framework intended to facilitate the responsible development of digital assets. The research results will lead to an authorization of financial regulatory bodies like the SEC (Securities and Exchange Commission) to start an all-out intense probe into the digital asset markets that have arisen, with the intent being to facilitate more stability in and around the ecosystem.
The Biden’s directorate charged the CFPB( Consumer and Financial Protection Bureau) and the FTC (Federal Trade Commission) to intensify monitoring investigations in the crypto ecosystem. The government’s goal here is to eradicate the illegal and deceptive practices that allow the illicit use of cryptocurrency and also to increase the security of digital asset services so that hacks by foreign entities become less commonplace and hence less of a security risk. Cryptocurrency enthusiasts have displayed a range of responses, from the outright rejection of the order to celebration of it. At the end of the day, the main takeaway is that crypto is growing up and the US Government now sees fit to become more and more involved.
The Executive Order authorized agencies to start the adoption of instant bankless payment models e.g FedNow and the administration is looking into a likely consideration of the normalization of non-bank payment systems. The NSF (National Science Foundation) has also been saddled with studies of the ‘technical and socio-technical disciplines and behavioral economics’ to foster a better public understanding of the digital ecosystem. A new report from the White House, specifically the Office of Science and Technology Policy (OSTP) and Department of Energy (DoE) mentions launching a regulatory digital asset investigation program. This will be based on its environmental impacts and giving local authorities the needed tools and materials to reduce environmental damage.
The Bank Secrecy Act (BSA) will be revamped and readjusted to place bigger fines for illegal or unlicensed money movement and tighten the laces up against digital asset service providers. According to the White-House Fact Sheet, “The president will evaluate whether to call upon congress to amend the Bank Secrecy Act, anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers- including digital asset exchanges and non-fungible tokens (NFT) platforms.” The administration apparently aims at reducing the rate at which crypto platforms are used for illicit money laundering and gambling and to ensure service providers are more vigilant.
A Risk-Assessment program will be launched by the U.S Treasury Department concerning Decentralized Finance (DeFi). Although the study is still tagged inconclusive with a ‘need for further research’, the Biden Administration conducted policy review for a U.S CBDC system, explaining the intentions and clarity of the government as regards the creation of the digital dollar.
The key takeaways from the new regulatory scheme released by the government are to:
Protect consumers and business owners from cyber attacks and crimes
Create a platform for easier access to digital financial services
Bring financial stability to users of cryptocurrency
Foster the country’s position as a financial alpha
Prevent frequent crypto crashes, attacks, and frauds as much as possible
All reasonable enough in terms of goals, and certainly things we would expect the US Government to see as falling within its purview. The reality on the ground is still indeterminate, however, with the cryptocurrency industry both appreciative of the possible clarity it may discover here and anxious about potential issues that will be discovered along the way to the expense of rapid new protocol creation.
Probable Impacts on the Crypto Market
Many governments around the world have gotten involved with digital asset monitoring and the latest government to follow suit is the U.S government. The general crypto market will experience its first serious regulatory guidance with the introduction of the new Biden Regulatory Framework. The long-awaited reception of the new Web3 digital space at the highest levels of the US Government is now underway. [In] “the long term, this is extremely positive for the crypto market and is absolutely necessary to allow it to grow further, mature, and be more accessible to institutional investors”, said Tal Elyashiv, Founder of SPiCE VC, appearing in Time Magazine.
If regulation is properly executed, illegal crypto activities will be eradicated almost totally and innovation in the space that proceeds from good faith will be allowed to prosper simultaneously. The involvement of the government in an effective regulatory capacity would also allow the notorious volatility of cryptocurrencies to be reduced to its barest minimum by enabling major institutions to become involved with the market as regulatory practices and penalties for misconduct begin to reduce the unpredictability of the Web3 space..
It is safe to say the new executive order is a sketch of what the Administration has in stock for future crypto activities and should be interesting to watch, though little conclusive has yet emerged except for the uptick in interest by regulators encouraged by the White House. The order attempts to strike a balance between the costs and benefits implicit in the nascent cryptocurrency/Web3 space while doing everything it can to eliminate the obvious risks that have led to billions of dollars being stolen out of DeFi projects. And, perhaps most importantly, the White House wants to consistently show that the dollar is ‘the world’s currency.’ Stablecoin projects take note: even if a sharp transition into the digital world is at its peak, US interest dictates that the dollar must not become obsolete.
More generally, the Biden Administration appears to be proceeding cautiously toward mass adoption of Web3 technology. The impacts upon cryptocurrency markets are most likely yet to come, and will become significant if and when the majority of internet users decide to adopt them. For now, it appears that the United States Government aims to embrace Web3 albeit with an eye toward the risks involved in the space.
As Web3’s focus shifts toward user experience & friendlier user interfaces to step up onboarding into the space, builders can expect to see increasing regulatory interest.