Biden’s Bitcoin Bellyache: US signals regulation in the crypto sector

April 7, 2022


3 min read

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What's going on here?

US President Joe Biden has signed an executive order requiring officials to draft proposals for cryptocurrency and crypto asset regulation within 180 days.

What does this mean?

The crypto asset market, which includes currencies like Bitcoin and Ethereum as well as other financial assets which take their values from cryptocurrencies (known as derivatives), is notoriously volatile, young and murky. This has led many to call for greater oversight and regulation from governments and financial institutions. Whilst the order does not in itself introduce any new regulation, it signals the White House’s intent to do so in the near future.

It is unclear what form this regulation will take or how severe its restrictions may prove. Over the past five years, investment in crypto assets has sky-rocketed from $14bn to over $3tr, with estimates of up to 16% of American adults having invested in them. This growth has somewhat forced Biden’s hand, as the potential damage which abuse of the crypto system could cause increases with the scale of investment into the sector.

What's the big picture effect?

Cryptocurrencies have long been viewed with suspicion by governments and regulators, as the anonymity of investors has allowed the financing of illegal activities and money laundering on a huge scale, out of regulators’ sights. This has long been the rallying cry of those who call for greater (or any) regulation.

For the US, the development of Central Bank Digital Currencies (CBDCs) holds a particular danger. China, the leader in the field, having tested its digital yuan, views it as a way to gain greater control over the world of international money transfers. Currently, many cross-border transactions are conducted in dollars, as the world’s “reserve currency”, meaning many foreign central banks and institutions hold large quantities of dollars. This, in turn, makes the dollar extremely stable and props-up its value. With the rise of powerful digital currencies, and particularly CBDCs, the need for the dollar to facilitate cross-border transactions is dwindling.

The Russian invasion of Ukraine has also fuelled the conversation, as governments worry that crypto assets held anonymously could allow Russian government officials and oligarchs to escape the effects of Western sanctions. The sanctions, aimed at punishing Russia and crippling its economy, are some of the largest in history and the US wants Russia to bear their full weight.

The order was met with a mixed reception from the industry. Some called it “a big nothing burger with a side of psychobabble”. Others viewed it as an opportunity to “engage with policy makers on issues that matter” and to help shape policy in order for the sector to thrive whilst reducing the potential dangers.

Gina Pieters of the University of Chicago said that the US had acted prudently in delaying regulation, as it allowed the industry to mature somewhat, so that “we can see the form and shape of it now in a way that might not have been obvious four years ago”. She suggests that the order provides some clarity as to the level of attention different crypto assets and activities within the sector will likely attract the most attention from regulators.

After the order was signed, Bitcoin’s price surged 8%, suggesting that, on the whole, investors have interpreted it positively – perhaps their worst fears of massive crackdowns have been allayed and they foresee a continuation of the cautious US approach.

Report written by Joshua White

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