The Substance

U.S. President Joe Biden signed a long anticipated executive order on Wednesday, March 9, covering broad issues of cryptocurrencies mining, circulation and oversight. Although expectations were for increased stringencies and patronage, in reality the proposal came out quite favorable to the asset class. The move cheered Bitcoin (BTCUSD) and some other digital assets with the former spiking to $42,509 intraday for its largest percentage gain since Feb. 28. The order also required the government to assess the risks and benefits of creating a central bank digital dollar, as well as other cryptocurrency issues. Mass media called the document “the administration’s holistic and deliberative approach”.

In particular, Biden’s order will require the Treasury Department, the Commerce Department and other key agencies to prepare reports on “the future of money” and the role cryptocurrencies will play. In our view, this is a very interesting and pivotal initiative demonstrating that the world’s most powerful authorities well understand the nature of the crypto world and its inherent ability not only to store value better than fiat money, but also to efficiently compete against the latter. Cryptocurrencies and digital assets already affect people’s primary ways of accessing banking, so one of the prime function of the oversight authorities will be to protect consumers and ensure their transactions are safe and “safeguarded from volatility”, and the primacy of the U.S. dollar in the global economy.

The executive order is part of an effort to promote responsible innovation while mitigating the risk to consumers, investors and businesses. The document also outlined that a wide-ranging oversight of the cryptocurrency market, which surged past $3 trillion in November, is “essential to ensure U.S. national security, financial stability and U.S. competitiveness, and stave off the growing threat of cyber crime”.

Protecting consumers is an important part of the directive. There have been countless stories of investors falling for crypto scams, or losing huge sums of money through cyberattacks on exchanges or users themselves.

One key objective is to redress inefficiencies in the current U.S. payments system and boost financial inclusion, especially of poor Americans, about 5% of whom do not currently have bank accounts due to high and rising fees.

Tether (USDT), the world’s largest stablecoin with $80 billion in circulation, has attracted the ire of regulators over claims its token is not adequately backed by physical collateral dollars. Tether says its coin is fully backed, however the makeup of its reserves includes short-term debt obligations like commercial paper, not just cash.

The topic of stablecoins was notably absent from this particular White House’s announcement, though Head of Treasury Department Janet Yellen has made clear she wants to see Congress introducing regulation for the sector.

Another key measure directs the government to assess the technological infrastructure needed for a potential U.S. Central Bank Digital Currency (CBDC) – an electronic version of dollar bills in your pocket. The document admits it could take years to develop and introduce a “digital dollar”.

It’s a more subtle point, but Biden also touched the issue of the ample energy cost baked into digital currencies like bitcoin. He wants the government to study ways to make crypto innovation more “responsible,” reducing any negative climate impacts.

Part of the language in the White House announcement focuses on giving the U.S. a competitive edge over other countries when it comes to crypto development. This is especially significant now that China has effectively banned cryptocurrencies. Biden has tasked the Department of Commerce with “establishing a framework to drive U.S. competitiveness and leadership in, and leveraging of digital asset technologies.”

Key Takeaway

The expectations for the document were that it could pose a definitely restrictive tone urging SEC and other U.S. financial watchdogs to curb further crypto penetration into classic financial sector and prevent it from becoming a prime investment class. Below is the summary comparison table entailing the expectations vs. reality, which shows that the whole story isn’t as bad as it was anticipated: