President Biden’s newly signed executive order is generating a good deal of excitement about where crypto is headed next. Prices are still far below their November 2021 highs and cryptocurrencies have been volatile since the start of the new year.
But Biden’s announcement could instil a confidence in digital currencies that has been sorely lacking over recent months.
What's in Biden's Crypto EO?
The order was essentially a direction for US government bodies to examine how cryptocurrency will fit into the future economy.
Federal agencies including the treasury department have been tasked with investigating how cryptocurrency impacts things like national security and financial stability.
The Financial Stability Oversight Council has been encouraged to identify and mitigate systematic risks posed by digital assets and to develop appropriate policy recommendations to address any regulatory gaps.
However, the order also contains instruction for measures that will promote American leadership in the global financial system, with the Department of Commerce tasked with establishing a framework for leadership in, and leveraging of, digital asset technologies.
Technical advances are also to be prioritised and supported, with the document making nods to reducing environmental impacts, maintaining security and promoting privacy.
Additionally, the executive order called for exploration of a US Central Bank Digital Currency (CBDC). This segment of the order called on government institutions to “assess the technological infrastructure and capacity needs for a potential US CBDC in a manner that protects Americans’ interests”.
The White House also asserted that 100 countries had already begun or were piloting their own digital sovereign currency.
It's a lot to take in and appears to be a major commitment by Biden's administration to get to grips with cryptocurrency.
First of all, it’s key to note that this is Washington’s biggest lean into cryptocurrency. GlobalBlock analyst Marcus Sotiriou explained:
“This is the “first ever, whole-of-government” approach to overseeing the sector in the US as it calls on the Treasury, Financial Stability Oversight Council, Federal Reserve and national security agencies to work on relevant sections of the crypto ecosystem.”
But why is this only happening now?
Well, the Biden administration made clear last year that they intended to look very closely at cryptocurrency, gearing the space up for the prospect of some sort of regulation.
However, the timing of this executive order appears to have been influenced by global events, with US lawmakers concerned that Russia might be using cryptocurrency to escape the impact of Western sanctions. With the Russian Ruble in freefall, digital currencies are a great way for oligarchs to put their riches out of harm’s reach or transfer them abroad without relying on compromised means.
So while this has not come from nowhere, the move might have been accelerated by these fears.
A Boost for Crypto?
Essentially, the administration is paving the way towards regulation of cryptocurrency and other digital assets. While that might sound scary, it's not necessarily bad news. In fact, it could be quite the opposite.
For one thing, Washington is clearly not set on pushing cryptocurrency overseas as has been seen from the enforcement of tight new regulations in countries like China. This chased away a strong community of Chinese crypto-miners, with many of these companies filtering into other geographies.
With Biden seeking to promote US leadership in the space, such a phenomenon is now almost unthinkable in the US.
The executive order is still an early step, offering little word on what promoting US leadership in the space might mean in practice, but the noises coming out of the White House are largely positive. It might come in the form of business incentives which will seek to encourage more widespread adoption of cryptocurrency and bring new players to the arena.
Additionally, clearer frameworks for banks and other financial institutions will likely lead more of them to invest in cryptocurrency directly and on behalf of their own customers. In theory, this theorised snowball in popularity is fantastic news for cryptocurrency.
In short, the months ahead will yield more information about where US government bodies stand on the crypto issue following Biden's call to action. However, for many, it's just the fact that the White House has legitimised cryptocurrency with its curiosity that counts.
The cryptocurrency space has largely reacted positively to the announcement, with both Bitcoin and Ethereum climbing by more than 5% in the immediate aftermath of the news. This welcoming response appears in large part down to the tone of the announcement and the approach of the administration.
GeoEconomics Center senior director, Josh Lipsky, commented:
“Previously, the Federal Reserve’s position was that it didn’t want to tinker with the dollar. Now, there’s a realisation that doing nothing is just as risky, and that the United States – the issuer of the world’s reserve currency – should innovate from a position of strength.”
This is a change of position which appears to be reflected in the executive order as a whole, as well as in the crypto community’s response.
Biden doesn’t appear to be gearing up to put the squeeze on cryptocurrency and crypto investors aren’t fearing Washington wading in quite as much as they did just last year.
Circle CEO, Jeremy Allaire, commented on twitter:
“We are at a turning point in geopolitical and geo-economic systems and history, and the U.S. now has the opportunity to lean into an open, internet-native economic infrastructure while others focus on closed, tightly-controlled and privacy-eroding alternatives.”
While this elaborates on the optimism surrounding Biden’s crypto announcement, it should be noted that this could change. However, the content of the announcement is not the only thing driving the positive response, as has been noted by Ripple CEO, Brad Garlinghouse. on twitter.
“First and foremost, this is an affirmation that crypto is here to stay. Thoughtful policy involves timely input from players (and there’s a lot!) across the federal govt. I don't want to mistake activity for progress, but this does feel like it could be a turning point.”
This is key.
That’s because after its immediate bounce higher, crypto prices have settled back to pre-announcement levels. The noise of those celebrating the announcement has died away a little, with the emergence of the uncomfortable reality that part of crypto’s appeal is its lawless nature.
As Fenergo senior financial crime consultant, Edmund Kulakowski, told Reuters:
"Biden's executive order could signal the end to the wild west of crypto as we know it.”