Biden’s cryptocurrency framework is a step in the right direction

The White House released its first comprehensive framework this month for the Responsible Development of Digital Assets following President Joe Biden’s March 9 executive order. The order called for regulators to assess the industry and develop recommendations to safeguard investors while simultaneously promoting innovation. While more work is needed, the framework is a step in the right direction as it shows the willingness of regulators to provide the industry with the much-needed regulatory clarity it seeks. 

The framework’s recommendations addressed six key areas to protect market participants, offer access to financial services, and promote innovation. While Biden’s administration has focused more on just the protection of consumers in the industry in the past, it is encouraging to see the framework focus on all three groups in the industry — consumers, investors and businesses. The framework cited a 2018 Wall Street Journalstudy that showed nearly a quarter of coin offerings had red flags such as plagiarized documents and promises for return on investment. To encourage protection, the framework encouraged regulators to “aggressively pursue” unlawful practices in the industry, redouble enforcement efforts, and increase public-awareness efforts to promote education in this area.

Additionally, the framework provided steps for both the Biden administration and Congress to fight against illicit finance, such as amending the Bank Secrecy Act, monitoring transactions, and exposing and disrupting illicit actors.

The framework also discussed promoting access to safe and affordable financial services. This is one of the key positives for the cryptocurrency industry, as it has provided access to financial services to millions around the world. It mentioned the fact that nearly 7 million Americans have no bank account, and another 24 million rely on nonbanking services, which can be costly. By encouraging payment providers to have increased instant access to payment systems, prioritizing the efficiency of cross-border payments, and supporting research in technological and socio-technological disciplines, the framework can help provide much-needed financial services to those in need.

Biden will also consider creating a federal framework to regulate nonbank payment providers, some of which now offer cryptocurrency services. The framework will also provide financial stability by having the Treasury bolster financial institutions’ capacity to identify, track and analyze emerging strategic risks and mitigate cyber vulnerabilities.

The recommendations promote the advancement of responsible innovation in digital assets. Biden does this by having the Office of Science and Technology Policy and the National Science Foundation (NSF) develop a Digital Assets Research and Development Agenda, as well as providing regulatory guidance and technical assistance to innovative American firms in the industry. The NSF will also back social sciences and education to promote safe and responsible digital asset use.

This is a step in the right direction for regulators as it allows them to first understand both the technological benefits of this technology while also tracking the environmental impacts in order to provide a clear strategy for the industry to move forward. This will allow the United States to reinforce its global financial leadership and competitiveness by helping innovative technology and digital asset firms to become stronger in international markets as well as assist foreign and developing countries in building out their digital asset infrastructure with U.S. values intact.

The area where the framework has received the most resistance is related to exploring a U.S. Central Bank Digital Currency (CBDC). While at face value, CBDCs seem to be the best of both fiat and cryptocurrencies, the implications can have widespread negative effects. The recommendations note potential benefits of a U.S. CBDC, such as a more efficient payment system, faster cross-border transactions and environmental sustainability.

While these certainly are positives, a CBDC’s main flaw stems from centralization. Having a centralized system governing CBDCs means they are much more easily tracked, have more vulnerable systems when compared to that of Bitcoin, and can lead to a potential increase in data breaches.

With that said, Biden’s officials are simply exploring the use case for CBDCs, meaning that he and his regulators are gathering feedback to determine the best course of action.

Cryptocurrencies have existed for over a decade. Yet, despite the industry looking to the government to provide the regulatory clarity needed to remove much of the uncertainty and doubt, it has not been until this year that the industry finally received an indication of what that clarity may look like.

Biden and the regulatory agencies that submitted nine reports to him have created the first-ever comprehensive regulatory framework for cryptocurrencies. It does a commendable job targeting the areas that are most in need of regulation and by increasing research in this area along with listening to market experts, what is a great first step can become exactly what the industry needs to continue to grow and innovate without a looming threat over its shoulder.

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