On Wednesday, President Biden finally issued a long-awaited Executive Order (the "Order") directing the government's regulatory agencies to examine the risks and benefits of cryptocurrencies. Many of our clients have been on edge in anticipation of the President's directive, which has been delayed several times since the White House initially suggested it would evaluate the fast-growing industry in light of increasing concerns over its potential impact on an array of important issues, including national security and financial stability.
The essence of the directive is to bring all relevant governmental players under an organized and cohesive strategy. As attorneys serving as counsel to several companies working in the digital asset or crypto industry, we know first-hand that uncertainty derives primarily from the turf-war among regulatory agencies. As of today, the Securities and Exchange Commission ("SEC") has been the lead regulatory body in this space. The Financial Crimes Enforcement Network and the federal banking agencies also have regulatory roles.
The SEC is often criticized for providing little-to-no guidance and then "regulating through enforcement" in actions against crypto startups. This creates several challenges for both startups and their respective counsel that could well be addressed by the Order's directives.
Commenting on Twitter, Jonathan Libby, chief executive officer of Harris Beach client Steady State, acknowledged that "trying to be innovative when regulatory boundaries are blurred is frustrating to entrepreneurs and founders alike." He described the President's Order as a "major first step" toward adding certainty as cryptocurrency accelerates into the mainstream.
Steady State is an insurance platform that uses Blockchain technology to insure entities and their respective users against catastrophic risks, such as hacks.
According to a fact-sheet published by the White House, the "Order lays out a national policy for digital assets across six key priorities: Consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation." Based on our review of the documents published by the White House, the Order:
- Provides oversight of the industry to safeguard against any systemic financial risks to consumers, businesses and investors;
- Protects U.S. and global financial stability by identifying and mitigating economy-wide financial risks through the Financial Stability Oversight Council;
- Requires U.S. government agencies to coordinate internally and with U.S. allies and partners overseas to ensure that international frameworks mitigate national security risks posed by illicit use of digital assets.
- Requires the U.S. Department of Commerce to work across the U.S. Government to foster competitiveness and leadership in the industry and to discover ways in which digital asset technologies may improve governmental operations and implementation of enacted policies.
- Explores and assesses the technological infrastructure and capacity needs for a potential U.S. Central Bank Digital Currency ("CBDC");
- Studies and supports technological advances while also prioritizing equal access, affordability, privacy, security, combating illicit exploitation and reducing negative climate impacts.
This unprecedented call to action by the White House is viewed as a major step for the industry as a whole. Rarely, does the federal government take such a drastic measure to help legitimize such a novel industry. However, the Order also encourages regulators to ensure sufficient oversight and safeguard against systemic risks posed by digital assets. As a result, the Order will lead to a new regulatory framework detailing how digital assets will interact with the financial system.
Jeremy Allaire, the CEO of Circle, a payment system leveraging traditional payment rails through Blockchain infrastructure, wrote on Twitter that the President's Executive Order is "...appropriately focused on the here and now of rapid growth in digital assets and stablecoins, and getting it right so that these technologies can flourish in a responsible manner."
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