What Would Biden’s Crypto Executive Order Mean for the Cryptocurrency Market?

There has been extreme volatility in cryptocurrencies over the last two years. The trend has continued in 2022 and Bitcoin prices fell to multi-month lows before staging a comeback. President Biden is reportedly looking to issue an executive order to regulate cryptos.

Globally, authorities have been looking at ways to regulate cryptos. Cryptos are a threat as well as an opportunity for regulators. While regulators fear that the rising popularity of cryptos would lower their powers to regulate monetary policies and currencies, many others are looking at ways to tax cryptos.

In the past, there have been reports about Biden possibly issuing an executive order to regulate cryptos. In 2021, the White House said that the Biden administration was considering an oversight of the crypto market and an executive order is one of the options on the table.

Reports about a possible executive order also emerged in January. There were reports that Biden will issue an executive order on cryptos and CBDC (Central Bank Digital Currencies) in February. Now, there are reports that Biden might issue an executive order as soon as this week.

The administration has been taking steps to regulate cryptos. In 2021, the Biden administration issued recommendations that only banks be allowed to issue stablecoins. Many people have been apprehensive of these stablecoins and doubt if the issuers back them up with dollars. The IRS came up with regulations and crypto transactions above $10,000 have to be reported to the agency.

According to a Blomberg report, which cites administration officials aware of the matter, Biden could issue an executive order on cryptos this week. In February, citing a Biden administration official, Yahoo Finance had given a broad overview on what the crypto executive might look like.

The order is expected to call upon different federal agencies like the Department of State, Department of the Treasury, Department of Justice, and Department of Homeland Security to study the risks and opportunities with cryptos. The order would call upon these agencies to produce a report on the future of payments.

The order is expected to call upon the Federal Reserve, SEC, FDIC, and CFTC to study market protection measures. The Office of Science and Technology policy will study the digital distributed ledger technology and its impact on the environment. Federal agencies could be asked to look at ways to protect the interests of consumers, businesses, and investors.

The Financial Stability Oversight Council could be asked to study the financial stability risks of cryptocurrencies. The agency is already looking into the systemic risks associated with stablecoins.

Monetary policy is a key function in any economy. As James A. Garfield famously said, “He who controls the money supply of a nation controls the nation.” However, the growing popularity of digital assets puts central banks’ authority at stake.

Many people think that cryptos threaten national security. Those who engage in ransomware and malware attacks prefer to take payments in cryptos. Even Berkshire Hathaway’s vice chairman Charlie Munger thinks that cryptos are only good enough to pay criminals. Warren Buffett isn't a fan of cryptos and has spoken against them on multiple occasions.

The national security implications of cryptocurrencies have come into the forefront amid the Russia-Ukraine war. Markets are speculating that Russia might use cryptocurrencies to evade the sanctions that western countries including the U.S. have imposed on its banks.

Incidentally, while cryptocurrencies crashed in the initial days of Putin's invasion of Ukraine, they staged a rebound on reports that Russia might use cryptos to blunt the sanctions. Hacker groups supporting Ukraine also received payments in cryptos.

While Biden's crypto executive order was in the works for months before the Ukraine invasion, the changed geopolitics might add a sense of urgency. Recently, Treasury Secretary Janet Yellen said that the impact of cryptocurrencies on sanctions needs to be watched.

Treasury's Financial Crimes Enforcement Network has called upon financial institutions to be vigilant over cryptos being used to evade the U.S. sanctions on Russia.

Acting director Himamauli Das said in a release, "Although we have not seen widespread evasion of our sanctions using methods such as cryptocurrency, prompt reporting of suspicious activity contributes to our national security and our efforts to support Ukraine and its people."

Globally, there are a lot of divergences as well as ambiguity on regulating cryptos. China has banned crypto trading and barred the country's financial institutions from supporting crypto transactions. While Russia was previously looking at banning cryptos, it had a change of heart and will instead regulate them.

India has an ambiguous policy towards digital assets. In this year's annual budget, the country imposed a hefty 30 percent tax on gains on the transfer of digital assets. However, while many saw it as a sign of a de facto legalization of cryptocurrencies, the country clarified that taxing digital assets doesn't mean that it's legalizing them.

Biden's executive order is also expected to call for global coordination in regulating cryptos. Massive variance in global crypto regulation and taxation leads to arbitrage and the emergence of "crypto tax havens." Some sort of parity in global regulations surely seems to be the need of the hour.

Meanwhile, reports of Biden issuing an executive order about cryptos are coming at a time when the Fed is contemplating launching a digital currency, or a CBDC. The U.S. Central Bank has already issued a discussion paper on the pros and cons of launching a CBDC.

Several countries including China are experimenting with digital currencies. The U.S. is falling behind emerging countries like China and India when it comes to digital payments. With a CBDC, the U.S. could protect the dollar’s pre-eminence in the global financial system.

The EU is also warming up to CBDC, while India expects to launch its digital currency by March 2023. Biden's executive order on cryptos might also help put emphasis on CBDC. We might see a sense of urgency in federal agencies on the timeline for a digital dollar.

However, digital dollars are still years away. First, lawmakers have to agree to launch the digital dollar. That wouldn't be easy because some lawmakers in both the Democratic and Republican parties are against the concept. Even if lawmakers approve the digital dollar, it would take a few years for it to be implemented.

In the past, multiple reports stated that Biden's crypto executive order is days away. Will this time be different and will we finally see steps from the administration to study and regulate the crypto market? An executive order is possible amid reports of Russia using cryptos to evade sanctions.

It isn't a coincidence that Russia talked about regulating cryptos just days before the Ukraine invasion. It's time that not only the U.S., but the global community takes a more holistic view of the crypto markets and what risks and opportunities exist.