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How Biden’s Executive Order Will Affect Bitcoin and the Crypto Market

After several weeks of speculation that it was coming, US President Joe Biden has issued an executive order calling for the “responsible development of digital assets.” This means cryptocurrencies, which the United States has arguably allowed to remain un(der)regulation for too long. It also means the possible development of a USD-based central bank digital currency, with Biden assigning numerous governmental agencies the task of determining the implications of a CBDC for the United States.

But what are the implications of the order for the cryptocurrency sector itself? Well, opinions on this question aren’t neatly aligned, although the broad industry consensus is that the order is a positive development for crypto on the whole. That’s because it commits the US legislative system to finally make up its mind on what to do with crypto, even if the exact regulations it will introduce haven’t been decided yet.

In other words, the order is the beginning of the end for the regulatory uncertainty that has prevented a significant increase in institutional (and retail) investment in crypto. And despite the possibility that eventual regulation will impose stricter standards and conditions on the industry, the removal of uncertainty will likely far outweigh any downside from new laws.

The new executive order regaring crypto is out

Here’s What’s In Biden’s Executive Order on Cryptocurrencies and Digital Assets

Here’s a quick rundown of everything Biden’s order calls for and outlines:

  • Developing a CBDC policy. This involves looking at the possible benefits and risks for consumers, investors, and businesses of a central bank digital currency. It also requires an assessment in relation to financial stability and systemic risk; payment systems; national security; the ability to exercise human rights; and financial inclusion and equity. It also asks governmental agencies to examine the actions necessary to actually launch a US CBDC.

  • Introducing measures to protect consumers, investors and businesses with regards to cryptocurrencies and digital assets. This section requires agencies to investigate how the development and growth of cryptocurrencies has impacted consumers, businesses and investors. Logically enough, it also asks for policy recommendations as to the regulations or new laws that could be introduced to protect consumers and investors from abuses of digital assets.

  • Consider the implications of cryptocurrencies and digital assets for financial stability. This section tasks the Financial Stability Oversight Council (among others) with examining how the adoption and growth of cryptocurrencies might impinge on US (and global) financial stability. It also requires regulatory recommendations, assuming that the convened parties find risks to stability.

  • Reducing the illicit use of cryptocurrencies. This requires an examination of the extent of illicit uses of digital assets, as well a proposal of any measures or regulations that may be needed to curtail such uses.

  • Advancing US competitiveness and international cooperation. In Section 8, the order calls for an assessment of how the US can improve its competitiveness with regards to crypto-related innovation. It also requires calls for the formulation of policy on how the US can foster cross-border cooperation, so that regulations remain more or less consistent internationally.

The above represents the meat of Biden’s new executive order as far as crypto is concerned, with most agencies being required to report back within 180 days. And for many commentators and industry participants, the order represents a welcome step in the right direction.

“We applaud the White House for recognizing this as a defining moment for U.S. innovation on the world stage,” said Coinbase’s Faryar Shirzad, speaking to the Wall Street Journal. “We look forward to continuing our work with regulators and lawmakers.”

Likewise, Circle CEO Jeremy Allaire took to Twitter (where else?) to declare the order a “watershed moment for crypto,” providing the industry with a golden opportunity to engage with policy makers on future policy. “The proverbial doors of policymakers are WIDE OPEN, this is now a NATIONAL conversation in the U.S.,” he wrote.

Bitcoin Price Reacts, And What the Biden Order Really Means for Crypto

The market’s initial reaction was also one of apparent jubilation, with the price of bitcoin moving from a low of $39,000 on Wednesday morning (March 9) to $42,500 by the end of the day. However, BTC then dropped back down to just over $39,000, and remains there as of writing.

This short-lived see-saw rally underlines the fact that, even though the order was nowhere near as harsh as it could have been, the regulations that will result from it remain basically unknown at this point. So while there was an initial wave of market excitement following the order’s release, this quickly ebbed away, leaving behind the negativity of underlying macroeconomic conditions and the uncertainty of where US cryptocurrency regulations will end up.

Indeed, seeing as how the order simply calls for studies and policy recommendations, it’s no surprise that some observers arrived at a less-than wholeheartedly positive judgment of it.

“It’s the same song and dance in Washington D.C., which is, let’s study it. The executive order was full of statements that were leading statements that were factually questionable and made certain implications about how cryptocurrencies are being used, about the purported environmental impacts. So I think it’s very clear what the bias of the administration is, but we’ll see what comes out of it,” said Meltem Demirors, chief strategy officer at CoinShares, who was speaking to Bloomberg.

Order Remains “Quite Vague”

Miller Tabak + Co’s Matt Maley also told Bloomberg that the order “is quite vague,” and that the US government still talks “a lot about the need to keep restrictions on this asset class.”

Such criticisms warn against the assumption that the order will result in favorable regulations for the cryptocurrency sector. It’s possible that the opposite may end up being the case, not least in view of the fact that (as Demirors’ observed) the order appeared to prejudge crypto in various areas.

However, it’s worth pointing out the order made several — precisely, 12 — references to “innovation,” as well as a few to “technological advances.” It’s therefore clear that the US government is increasingly recognising the potential of cryptocurrencies, and wants to put the country’s economy in a position where it can benefit from them.

So this author’s opinion is that the order is a positive development for crypto. And most importantly, even if it does result in regulations that some smaller crypto-related companies (initially) find hard to satisfy, the overall effect will be positive. Because if there’s one thing that puts off big institutions and companies from involving themselves in the cryptocurrency sector, it’s regulatory uncertainty.

As found in PricewaterhouseCoopers’ 3rd Annual Global Crypto Hedge Fund Report 2021, 82% of traditional hedge funds are deterred from investing in cryptocurrencies because of “regulatory uncertainty.” The report also found that 50% of funds that do invest in crypto still find such uncertainty “a major challenge,” with 77% of all funds worrying about the reputational risk of making the move into crypto.

Eventually, Biden’s economic order will remove all of these obstacles. This is why it’s such a momentous step, because it will help make cryptocurrencies as familiar and as safe as stocks and bonds.

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CryptoVantage Author Simon Chandler

About the Author

Simon Chandler

Simon Chandler is a journalist based in London. He writes about technology, markets and politics, and has bylines for Forbes, Digital Trends, CCN, Wired, TechCrunch, the Verge, the Sun, the New Internationalist, and TruthOut, among many others. His Twitter handle is @_simonchandler_

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