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Biden Pushes For Cryptocurrency Framework

Tom Burroughes

10 March 2022

US President Joe Biden has told federal agencies to work in unison to draft crypto currency regulations, the first executive order issued about the space.

Reports (Coindesk, various media) said, however, that Biden’s order did not announce any new regulations which cryptocurrency companies must follow.

The move, originally contemplated back in October last year, will define six “key priorities” for the administration: protecting US interests, protecting global financial stability, preventing illicit uses, promoting “responsible innovation,” financial inclusion and US leadership, reports said.

“While Biden’s executive order could signal the end to the wild west of crypto as we know it, especially in light of a central US Central Bank digital currency being established, hopefully it will maintain the balance between fighting financial crime and protecting the public, while at the same time not stifling innovation," Edmund Kulakowski, senior financial crime consultant, , said. 

Biden’s measures come at a time when rival financial hubs such as Singapore and Switzerland have been creating relatively accommodating regulatory regimes for bitcoin and other digital assets. As noted here, the digital assets space is already affecting global wealth management. And the dramatic events in Ukraine – including Russia’s exclusion from the SWIFT banking network – have put a spotlight on new “currencies” and financial networks. Canada’s controversial temporary freezing of bank accounts linked to those protesting vaccine mandates – raising questions about civil liberties – have also highlighted the potential of new currency channels.

Coindesk reports that about 40 million US citizens – about 16 per cent of the total population – have invested in or traded in cryptos.

Policymakers are concerned about the volatility of crypto currencies and in the past have worried about potential misuse by criminals laundering money. Advocates of cryptos say they challenge state fiat currencies, a fact all the more serious after more than a decade of heavy central bank quantitative easing. As inflation rates rise, the arguments for alternatives to state-backed currencies grow more pointed.

Brian Deese and Jake Sullivan, Biden’s top economic and national security advisors, said (source: Guardian) that Biden’s order establishes the first comprehensive federal digital assets strategy for the US. “That will help position the US to keep playing a leading role in the innovation and governance of the digital assets ecosystem at home and abroad, in a way that protects consumers, is consistent with our democratic values and advances US global competitiveness,” Deese and Sullivan were quoted as saying.

There are concerns that Russia may be using cryptocurrency to avoid the impact of sanctions.

Bitcoin prices climbed sharply yesterday as news of the order came out, trading at around $42,000 later afternoon. At around 7:30 am UK time today it had slipped back to $39,240. The price skidded from above $44,000 last week, appearing to be dragged down by a more broad-based financial market fall due to the Russia-Ukraine conflict. 

Fenergo's Kulakowski said that some worries about cryptos were misplaced: “Crypto’s growing reputation as an easy way to launder money is somewhat of a red herring. It is important to recognise crypto still accounts for a relatively small percentage of financial assets traded globally, and an even smaller percentage of that will be involved in illicit activity. Much like traditional money laundering, using crypto to launder cash requires a middle step; it is not as simple as transferring assets into crypto because it is far more traceable through the blockchain.”

Ganesh Iyer, trading and network services expert, , said: “Is Biden beckoning the beginning of the end for ‘wild west’ crypto markets? More regulation of digital assets has implications for how institutions engage with the burgeoning asset class. Quant-driven hedge funds running arbitrage and quant strategies typically shine in more volatile and unstructured markets, capitalising on their superior access to market data. Whatever happens with crypto regulation, these fund managers need to squeeze out every opportunity by utilising networks that provide fast and unrestricted access to the major crypto exchanges. Only time will tell how and when this market will mature. Until that point there is an opportunity now for hedge funds to utilise ultra-low latency networks to make the most of volatile, compliance-light and liquid crypto markets.”