The Biden-Harris Administration released a framework for development of digital assets
The digital assets market is thriving.
Those that still think cryptocurrency is for “crypto bros” or that Bitcoin is a fad that will go away are due for a significant mind shift. Governments worldwide are rethinking digital assets.
Millions of people globally, including 16% of Americans, have purchased digital assets—which reached a market cap of $3 trillion globally last November.
Legislatures are putting policies in place that give more authority to regulatory agencies hoping to better police digital currencies. Meanwhile, the U.S is looking to establish their own central bank digital currency (CBDC).
Digital Assets Remain in Purist and Tourist Phase
Last year, a bull run in cryptocurrencies was front page news. The NFT market soared, several crypto projects made obscene amounts of money, and many investors became millionaires overnight. Unfortunately, there’s a steep downside: scams are rampant in the crypto industry. Financial technology (FinTech) is still in the “purist and tourist” development phase, meaning newcomers may easily fall victim to scams. Rugpulls are still alive and well, and the United States government knows it.
After a brutal Crypto Winter and the May crash of Terra LUNA, a subsequent wave of bankruptcies cleared out over $600 billion of investor and consumer funds.
Government agencies have been working diligently this year to develop regulatory guidelines and policy recommendations that advance the priorities of U.S. citizens while promoting innovation.
On Friday, the Biden-Harris Administration released a comprehensive framework for the responsible development of digital assets. It included seven key points.
Key Points
Consumer and Investor protection
Digital assets remain highly volatile. According to FBI statistics, reported monetary losses from digital asset scams were nearly 600 percent higher in 2021 than the year before.
Consumers are often misled about the expected returns of digital assets. Almost a quarter of digital coin offerings had transparency problems.
Scammers and thieves continue to take advantage of unsuspecting investors.
The Administration will attempt to protect consumers by taking the following steps.
- Encourage regulators like the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to aggressively pursue digital assets investigations.
- The Financial Literacy Education Commission (FLEC) will lead public-awareness efforts to help consumers understand the risks involved with digital assets. FLEC will show the public how to identify common fraudulent practices and learn how to report misconduct.
- Encourage Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) to bolster their efforts to monitor consumer complaints and hold bad actors accountable.
Promoting Access to Safe, Affordable Financial Services
Traditional finance leaves behind roughly 7 million Americans that have no bank account. The Administration wants the digital economy to work for everyone.
- Agencies will encourage the adoption of instant payment systems like FedNow – a new instant payment service that the Federal Reserve Banks are developing to enable financial institutions across the U.S. to provide safe, efficient, and instant payment services in real-time. Access will be available 24/7.
- Agencies will prioritize efforts to improve cross-border payments by working to align global payment practices, regulations, and supervision protocols.
- The National Science Foundation (NSF) will back research in technical and behavioral economics to ensure that all digital asset ecosystems are designed to be equitable and accessible.
Fostering Financial Stability
As the mainstream financial systems become increasingly enmeshed with digital assets, the Administration recognizes the need for regulation to address the stability risks.
- The Treasury will work with financial institutions, helping them to identify and mitigate cyber vulnerabilities.
- The Treasury will collaborate with U.S. allies to identify risks, including international organizations like the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Board (FSB).
Advancing Responsible Innovation
The United States is home to roughly half of the world’s 100 most valuable FinTech companies. A majority of these companies trade in digital asset services.
The U.S. government plays a critical role in mitigating harmful side effects of technological advancement.
- The Office of Science and Technology Policy (OSTP) will develop a Digital Assets Research and Development Agenda to kickstart fundamental research on next-generation cryptography, transaction programmability, cybersecurity and privacy protections, and ways to mitigate the environmental impacts of digital assets.
Reinforcing America’s Global Financial Leadership and Competitiveness
The United States is a global leader in finance. The Administration will partner with allies and use their position to help countries still developing their digital asset ecosystems.
- The State Department, the Department of Justice (DOJ), and other U.S. enforcement agencies will partner bilaterally with agencies in foreign countries through global enforcement bodies like the Egmont Group.
- The Department of Commerce will help cutting-edge U.S. FinTech and digital asset firms find a foothold in global markets for their products.
Fighting Illicit Finance
It is in the national interest to mitigate risks through regulation, oversight, law enforcement action, and the use of other United States Government authorities. To fight the illicit use of digital assets more effectively, the Administration plans to take the following steps:
- The United States will continue to monitor the development of the digital assets sector and its associated risks. As part of this effort, Treasury will complete an illicit finance risk assessment on decentralized finance by the end of February 2023 and an evaluation on non-fungible tokens by July 2023.
- Relevant agencies will continue to expose and disrupt bad actors and address the abuse of digital assets. The Administration will hold cybercriminals and other malign actors responsible for their illegal activity and identify nodes in the ecosystem that pose national security risks.
The risks that the agencies highlighted include, money laundering, terrorist financing, hacks, and fast-changing technology that may be misused.
Exploring a U.S. Central Bank Digital Currency (CBDC)
The Administration is exploring a U.S. Central Bank Digital Currency (CBDC) – a digital form of the U.S. Dollar. This is in the early stages. Basically, lawmakers are going to hold several meetings to figure out how to proceed.
The Administration believes a CBDC has the potential to offer benefits such as an efficient payment system, faster cross-border transactions, and environmental stability. It could foster economic growth and safeguard sensitive data.
“The leadership of the Federal Reserve, the National Economic Council, the National Security Council, the Office of Science and Technology Policy, and the Treasury Department will meet regularly to discuss the working group’s progress and share updates on and share updates on CDBC and other payments innovations.” – White House Executive Order
American Regulation is Developing
It’s a work in progress. The Biden Administration is aware of the successes and opportunities in the digital currency and FinTech sectors, and they’re setting the regulators up to take action when necessary.
Most of the wording of the Executive Order is along the lines of
- Will encourage
- Will prioritize
- The agency recommends
- Will develop
Don’t expect any significant changes to take hold immediately. While the United States government is leaning into its established agencies to look closely at digital asset regulation, it’s unclear how much oversight the government will attempt. Likewise, the plans for a CBDC are still in their early phases.
The White House understands that digital assets are here to stay; however, they need to better understand how they affect the country’s financial sector, the world as a whole, and how they can better protect the American people.
About Kit
Kit Campoy is a former retail professional turned freelance writer. She writes about Leadership, Retail, and Web3. Contact Kit for your content needs.