Earlier this month President Biden signed an Executive Order representing the long-expected beginning of the U.S. government’s effort to address cryptocurrencies and digital assets in a comprehensive fashion instead of the ad hoc and piecemeal regulatory approaches we’ve seen thus far.
Here are a few of my takeaways from the EO:
- Positive #1: It doesn’t do anything…yet. The Executive Order doesn’t implement any policy of its own. Instead, it sets a framework for review of the need for action based on 6 provided objectives. Even if one is not similarly predisposed toward skepticism of government action as I am, it should be taken as a positive that a government full of lawmakers and regulators who remain largely ignorant of the relevant technology is not rushing into industry-shaping policy changes.
- Negative #1: Risk-averse stance. The word “risk” appears in the order 47 times. Three of the six categories involve some manner of risk mitigation or protection, including the very first listed objective to “protect consumers, investors, and businesses in the United States.” It is difficult to read this posture as anything but a prelude to paternalistic regulation.
- Positive #2: U.S. competitiveness. The order recognizes the importance of U.S. leadership and competitiveness in the crypto sector. While no guarantee of good policy, this at the least likely precludes real or de facto bans.
- Negative #2: Central Bank Digital Currency (CBDC). One of the listed objectives is the exploration of a CBDC. Issuance of a CBDC is fraught with danger, particularly to privacy rights. CEI’s John Berlau explains how a CBDC represents “a solution in search of a problem.”
- Negative #3: Perpetuating costly financial controls. A large part of the story behind the rise of cryptocurrency is the difficulty in innovating within the legacy financial system and its tightly controlled regulatory environment. The EO is loaded with the same sort of fearmongering over “illicit” financial movements that have led to an evisceration of global financial privacy rights and bogged down the financial system with excessive reporting requirements.
An effort to “increase financial services providers’ compliance with AML/CFT obligations related to digital asset activities,” foreshadows regulatory peril. Failed policies like anti-money-laundering laws are anathema to the ethos of Web3. - Negative #4: Climate concerns. The order cites the U.S. government’s interest, among other things, in ensuring through its leadership in the space that digital asset development “reduces negative climate impacts and environmental pollution, as may result from some cryptocurrency mining.” A climate-focused analysis of the impact of cryptocurrency is not necessarily a negative unto itself, but the above language suggests that the administration may not provide a complete picture by focusing only on costs and not weighing benefits.
For instance, mining can use flared gas that is typically burned because the costs of transportation are too high, and it also helps stabilize the energy grid. The latter is particularly beneficial for renewables that aren’t generated to match demand (i.e. the wind blows when the wind blows). There’s also the fact that crypto is capable of replacing other energy-intensive industries.
The downside risk of a narrow approach to assessing crypto’s climate impact is folly like the recent effort in the EU to ban proof-of-work blockchains. If environmentalists have a problem with the impact of energy consumption, then it should be addressed through remedies related to energy production and not through picking winners and losers among emerging technologies merely because they consume energy.
These are the takeaways that stood out to me, though this is far from a comprehensive assessment of the EO. And as you can see, I ran out of positives before I ran out of negatives.
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Image credit: mohamed_hassan | Pixabay License.
