Why the Crypto Executive Order Is a Historical Milestone

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The past year has seen a flurry of cryptocurrency regulation-related activity, particularly from banking regulators. On March 9, U.S. President Joe Biden signed the executive order called “Ensuring Responsible Development of Digital Assets” amid the explosive growth in blockchain technologies and cryptocurrency adoption. Just two weeks ago, U.S. Treasury Secretary Janet Yellen made her first-ever public speech addressing digital assets.

The beginning of a regulatory framework for digital assets now seems to be coalescing. But what would such a framework entail? What aspects of the digital asset ecosystem will the regulation affect?

Michael Shing is the director of risk management of XREX, a financial services company. He is focused on emerging cryptocurrency regulation and risk assessments of crypto firms.

The executive order has set the gears in motion for building a comprehensive and far-reaching crypto regulatory framework. This article highlights the key developments leading up to and following the order that help us anticipate the approach and areas of focus for emerging crypto regulation.

Nearly all participants in the crypto ecosystem will be affected by regulation in some manner, large or small. Anticipating possible next steps in the near future and developing a game plan on how to prepare will be especially crucial for companies and builders in crypto.

Road to regulation

Consider some of the significant regulatory events from recent months. In November, the Federal Reserve, Federal Deposit Insurance Corp. (DIC) and the Office of the Comptroller of the Currency (OCC) jointly announced the completion of “policy sprint” initiatives on crypto assets. Those “sprints” identified and assessed key risks surrounding crypto assets and provided a gap assessment of existing banking regulations and guidance that needed additional clarification.

This is crucial because the web of regulatory agencies tasked with maintaining the health of the financial system is a complicated one. With different bodies governing different financial entities and activities, it is critical for regulators to have a unified view of what a new digital asset landscape looks like and identify the areas subjected to governance.

Digital dollars in the form of stablecoins and a central bank digital currency (CBDC) have also garnered significant attention from regulators and legislators. Also in November, the President’s Working Group on Financial Markets issued a report on stablecoins that demonstrated a firm understanding of the current stablecoin market, highlighted the inherent risks and gaps within current regulation and, most importantly, recommended legislative action to ensure a comprehensive regulatory framework. The report also spurred constructive discussion at both Senate Banking Committee and House Financial Services Committee hearings.

The executive order signed by Biden outlines a whole-of-government approach by calling on numerous government agencies to collaborate on research, regulatory and legislative recommendations in order to achieve several policy objectives related to digital assets.

The order marks both a historic moment on the path to broader adoption and enhanced regulation of cryptocurrency. It is also largely symbolic in its purpose of tying together regulatory work that has been ongoing. The many government agencies are not starting from scratch and have been hard at work. The executive order, however, may be just the adrenaline shot regulators needed to get to the finish line.

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